Foundations of Finance (9th Edition) (Pearson Series in Finance)
9th Edition
ISBN: 9780134083285
Author: Arthur J. Keown, John D. Martin, J. William Petty
Publisher: PEARSON
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Chapter 12, Problem 2RQ
Summary Introduction
To discuss: The difference between business risk and financial risk.
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Free Cash Flow
Use the financial statements shown here for Lan & Chen Technologies. The federal-plus-state tax rate is 25%.
Lan & Chen Technologies: Income Statements for Year Ending December 31
(Thousands of Dollars)
2023
2022
Sales
$960,000
$900,000
Expenses excluding depreciation and amortization
820,000
774,000
EBITDA
$140,000
$126,000
Depreciation and amortization
33,000
31,500
EBIT
$107,000
$94,500
Interest Expense
10,000
8,900
EBT
$97,000
$85,600
Taxes (25%)
24,250
21,400
Net income
$72,750
$64,200
Common dividends
$43,000
$41,230
Addition to retained earnings
$29,750
$22,970
Lan & Chen Technologies: December 31 Balance Sheets
(Thousands of Dollars)
Assets
2023
2022
Cash and cash equivalents
$48,250
$45,000
Short-term investments
3,200
3,600
Accounts Receivable
280,500
270,000
Inventories
141,000
135,000
Total current assets
$472,950
$453,600
Net fixed assets
360,750
315,000
Total assets…
The Talley Corporation had taxable operating income of $365,000 (i.e., earnings from operating revenues minus all operating costs). Talley also had (1) interest charges of $50,000, (2) dividends received of $25,000, and (3) dividends paid of $35,000. Its federal tax rate was 21% (ignore any possible state corporate taxes). Recall that 50% of dividends received are tax exempt.
What is the firm’s taxable income?
What is the tax expense?
What is the after-tax income?
A real estate broker insures an office building for $500,000 under a Building and Personal Property Coverage Form with a Causes of Loss-Broad Form attached. If smoke from a nearby industrial factory enters the office building and causes $10,000 in damage to the interior, the policy will pay a MAXIMUM of which of the following amounts?
a. $0
b. $1,000
c. $5,000
d. $10,000
Chapter 12 Solutions
Foundations of Finance (9th Edition) (Pearson Series in Finance)
Ch. 12 - Prob. 1RQCh. 12 - Prob. 2RQCh. 12 - Prob. 3RQCh. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 8RQCh. 12 - Prob. 13RQCh. 12 - Prob. 1SPCh. 12 - Prob. 3SPCh. 12 - Prob. 4SP
Ch. 12 - Prob. 5SPCh. 12 - (Capital structure theory) Match each of the...Ch. 12 - (Capital structure theory) Which of the following...Ch. 12 - Prob. 8SPCh. 12 - Prob. 9SPCh. 12 - (Assessing leverage use) Financial data for three...Ch. 12 - Prob. 1.1MCCh. 12 - Prob. 1.2MCCh. 12 - Prob. 1.3MCCh. 12 - Prob. 2.1MCCh. 12 - Prob. 2.2MCCh. 12 - Prob. 2.3MC
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