Doorchime Company makes doorbells. It has a weighted-average cost of capital of 6% and total assets of $5,690,000. Doorchime has current liabilities of $550,000. Its operating income for the year was $630,000. Doorchime does not have to pay any income taxes. One of the expenses for accounting purposes was a $70,000 advertising campaign run in early January. The entire amount was deducted this year, although the Doorchime CEO believes the beneficial effects of this advertising will last 4 years. Q. Calculate residual income, assuming Doorchime defines investment as total assets.

Doorchime Company makes doorbells. It has a weighted-average cost of capital of 6% and total assets of $5,690,000. Doorchime has current liabilities of $550,000. Its operating income for the year was $630,000. Doorchime does not have to pay any income taxes. One of the expenses for accounting purposes was a $70,000 advertising campaign run in early January. The entire amount was deducted this year, although the Doorchime CEO believes the beneficial effects of this advertising will last 4 years. Q. Calculate residual income, assuming Doorchime defines investment as total assets.

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter14: Taxes On The Financial Statements

Section: Chapter Questions

Problem 25P

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Doorchime Company makes doorbells. It has a weighted-average cost of capital of 6% and total assets of $5,690,000. Doorchime has current liabilities of $550,000. Its operating income for the year was $630,000. Doorchime does not have to pay any income taxes. One of the expenses for accounting purposes was a $70,000 advertising campaign run in early January. The entire amount was deducted this year, although the Doorchime CEO believes the beneficial effects of this advertising will last 4 years. Q. Calculate EVA for the year. Adjust both the year-end assets and operating income for advertising assuming that for the purposes of economic value added the advertising is capitalized and amortized on a straightline basis over 4 years.
Past Perfect Inc. is a small firm that sells antique furnishings. In the most recent year, the firm generated $ 4 million in after-tax operating income on revenues of $ 40 million; the firm reported book value of equity of $ 8 million and book value of debt of $ 4 million at the beginning of the year. During the year, the firm invested $2 million in a new warehouse for furniture (its only cap ex) and reported depreciation of $1 million in its income statement. The firm’s only working capital item is its inventory, which increased by $ 200,000 during the course of the year. The cost of capital for the firm is expected to be 12% for the next 3 years and 10% thereafter. You have been asked to appraise the value of the company -Estimate the value of the firm at the end of year 3, assuming that the return on capital stays at the current level but the growth rate drops to 3%. -Assuming that Past Perfect Inc. has 5 million shares outstanding, estimate the value of equity per share. (You can…
Past Perfect Inc. is a small firm that sells antique furnishings. In the most recent year, the firm generated $ 4 million in after-tax operating income on revenues of $ 40 million; the firm reported book value of equity of $ 8 million and book value of debt of $ 4 million at the beginning of the year. During the year, the firm invested $2 million in a new warehouse for furniture (its only cap ex) and reported depreciation of $1 million in its income statement. The firm’s only working capital item is its inventory, which increased by $ 200,000 during the course of the year. The cost of capital for the firm is expected to be 12% for the next 3 years and 10% thereafter. You have been asked to appraise the value of the company Assuming that the firm maintains its existing return on capital and reinvestment rate for the next 3 years, estimate the expected free cash flow to the firm each year for the next 3 years.
One year, a company makes a $6,109 investment in a historic building. The investment is not depreciable, but it does qualify for a one-time 20% of investment amount as tax credit. In that same year, revenue is $46,651 and expenses (exclusive of the investment cost) are 40% of revenue. The company pays a total of 53% in income taxes. What is the after-tax present worth of this year's activities if the company's interest rate for investment is 10% (only 4 significant digits are required in the answer/zero decimal places, with no units).
The School of Mensis recently reported an Earnings Before Interest and Taxes (EBIT) of $37,500, and they incurred $9,250 of Depreciation and Amortization expense. The company's tax rate is $35%. In order to sustain its operations, the company was required to spend $15,250 to buy new equipment (Capital Expenditures) and to invest $6,850 in additional Net Operating Working Capital compared to the previous year. What is the company's Free Cash Flow (FCF) for the year?
Alpaca Corporation had revenues of $255,000 in its first year of operations. The company has not collected on $19,000 of its sales and still owes $27,100 on $96,500 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $12,800 in salaries. Owners invested $14,500 in the business and $14,500 was borrowed on a five-year note. The company paid $3,900 in interest that was the amount owed for the year, and paid $7,900 for a two-year insurance policy on the first day of business. Alpaca has an effective income tax rate of 36%. Compute the cash balance at the end of the first year for Alpaca Corporation. Can you pleae explain answer
The Bookbinder Company had $550,000 cumulative operating losses prior to the beginning of last year. It had $110,000 in pre-tax earnings last year before using the past operating losses and has $330,000 in the current year before using any past operating losses. It projects $360,000 pre-tax earnings next year. Enter your answers as positive values. If an amount is zero, enter "0". Round your answers to the nearest dollar. How much taxable income was there last year? $ How much, if any, cumulative losses remained at the end of the last year? $ What is the taxable income in the current year? $ How much, if any, cumulative losses remain at the end of the current year? $ What is the projected taxable income for next year? $ How much, if any, cumulative losses are projected to remain at the end of next year?
Alpaca Corporation had revenues of $275,000 in its first year of operations. The company has not collected on $19,400 of its sales and still owes $27,500 on $98,500 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $13,200 in salaries. Owners invested $16,500 in the business and $16,500 was borrowed on a five-year note. The company paid $4,200 in interest that was the amount owed for the year, and paid $8,200 for a two-year insurance policy on the first day of business. Alpaca has an effective income tax rate of 40%. (Assume taxes are paid in the same year). Compute the cash balance at the end of the first year for Alpaca Corporation.
Fan-Tastic Sports Gear Inc. recorded $2,900,000 of sales last year and projects sales to increase by $350,000 in the current year. Last year, 80% of sales were on account, with övel 300 customer accounts. Bad debt expense was $26, 187. 1. Assume that Fan-Tastic Sports Gear Inc. used the allowance method last year, and the allowance account at the end of the year had a debit balance of $2.240. The company estimated uncollectible accounts expense using the percent of credit sales method and expected 0.75% of credit sales to be uncollectible. What is the amount of the adjusting entry to provide for doubtful accounts on December 317 Round all computations to the nearest dollar. S 2. How much higher (lower) would Fan-Tastic Sports Gear Inc's net income have been under the allowance method assumption previously shown in (1) than under the direct write off method? (Enter "o it there is no change.) Higher by S Balance sheet 3. Usina the allowance method, the net realizable value of the…
Last year, Sharpe Radios had net operating profit after-taxes (NOPAT) of $7.8 million. Its EBITDA was $15.5 million and net income amounted to $3.8 million. During the year, Sharpe Radios made $5.5 million in net capital expenditures (that is, capital expenditures net of depreciation). Finally, Sharpe Radios’ finance staff has concluded that the firm’s total after-tax capital costs were $5.9 million and its tax rate was 40 percent.a. What is Sharpe Radios’ depreciation and amortization expense?b. What is Sharpe Radios’ interest expense?c. What is Sharpe Radios’ free cash flow?d. What is Sharpe Radios’ EVA?
Last year, Sharpe Radios had net operating profit after-taxes (NOPAT) of $7.8 million. Its EBITDA was $15.5 million and net income amounted to $3.8 million. During the year, Sharpe Radios made $5.5 million in net capital expenditures (that is, capital expenditures net of depreciation). Finally, Sharpe Radios’ finance staff has concluded that the firm’s total after-tax capital costs were $5.9 million and its tax rate was 40 percent.a. What is Sharpe Radios’ free cash flow?b. What is Sharpe Radios’ EVA?
Fan-Tastic Sports Gear Inc. recorded $3,000,000 of sales last year and projects sales to increase by $350,000 in the current year. Last year, 80% of sales were on account, with over 300 customer accounts. Bad debt expense was $26,187. 1. Assume that Fan-Tastic Sports Gear Inc. used the allowance method last year, and the allowance account at the end of the year had a debit balance of $2,240. The company estimated uncollectible accounts expense using the percent of credit sales method and expected 0.75% of credit sales to be uncollectible. What is the amount of the adjusting entry to provide for doubtful accounts on December 31? Round all computations to the nearest dollar. $