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2 years ago

Arlington Corporation's financial statements (dollars and shares are in millions) are provided here.

Business

1 answer:

LiRa [457]2 years ago

7 0

Answer:

1) Net working capital: December 31, 2019 2018 &57,520 $50,750

2) Free cash flow: $22,330

3) Statement of stockholder' equity: Common equity: 2019 2018: 50,000 50,000, Retained Earnings: 2019 2018 27,750 36,521 Stockholders equity: 2019 2018 77,750 86,521

4) EVA: $21,063

5) MVA: $13,480

Explanation:

1) Net Working Capital = Cash + Accounts receivable + Inventories - Accounts payable - Notes payable - Accruals

2019: 13,000 + 35,000 + 33,920 - 10,000 - 7,500 - 6,900 = 57,520

2018: 11,000 + 30,000 + 29,000 - 8,000 - 6,000 - 5,250 = 50,750

2) Free Cash Flow = Net Income + Non cash changes (Depreciation etc) + Interest * (1- tax rate) - fixed capital investment - working capital changes

2019 Free cash flow: 28,838 + 3,000 + 2,550 (1 - 25%) - 5,000* - 6,420** = 22,300

* We have to calculate the fixed capital investment by working among opening & closing balance of plant & equipment and depreciation charge as follows:

Closing balance = Opening balance + Addition - Depreciation

Now we have been provided all balances in above equation except for addition so we can calculate the balance of additions during the year as follows:

Addition = Closing balance - Opening balance + Depreciation

Addition = 49,000 - 47,000 + 3,000

*Addition = 5,000

** Working capital changes = 2019 balance of (Accounts receivable + Inventories - Accounts payable - Accruals) - 2018 balance of (Accounts receivable + Inventories - Accounts payable - Accruals)

Working capital changes = (35,000 + 33,920 - 10,000 - 7,500) - (30,000 + 29,000 - 8,000 - 6,000)

Working capital changes = 51,420 - 45,000 = 6,420

3) Statement of Stockholders' Equity

Refer attached file for statement of changes in Equity

4) Economic Value Added (EVA): EBIT * (1 - Tax rate) - Cost of capital * Total capital

EVA = 41,000 * (1 - 25%) - (10% * 77,750)

EVA = 28,838 - 7,775

EVA = 21,063

5) Market Value Added = Market Value - Total Capital

MVA = (25 * 5,000) - 86,520

MVA = 13,480

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What is the present value of the future cash flows, if you also could earn $110,000 per year rent on the property? The rent is p

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Answer:

a. The present value of the sales price is $1.657 million.

b. No. This is because an investment in the property will result in a negative net present value (NPV) of $0.443 million.

c-1. The present value of the future cash flows is $2.122 million.

c-2. Yes. Yes. This is because an investment in the property will result in a positive net present value (NPV) of $0.022 million.

Explanation:

Note: This question is not complete. The complete question is therefore presented before answering the question as follows:

You can buy property today for $2.1 million and sell it in 6 years for $3.1 million. (You earn no rental income on the property.)

a. If the interest rate is 11%, what is the present value of the sales price? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

b. Is the property investment attractive to you?

c-1. What is the present value of the future cash flows, if you also could earn $110,000 per year rent on the property? The rent is paid at the end of each year. (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

c-2. Is the property investment attractive to you now?

The explanation to the answers is now provided as follows:

a. If the interest rate is 11%, what is the present value of the sales price? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

The present value of the sales price can be calculated using the simple present value formula as follows:

PV = FV / (1 + r)^n ……………………….. (1)

Where;

PV = Present value of the sales price = ?

FV = Future value or the sales price in 6 years = $3.1 million

r = interest rate = 11%, or 0.11

n = number of years = 6

Substitute the values into equation (1), we have:

PV = $3.1 / (1 + 0.11)^6

PV = $3.1 / 1.11^6

PV = $3.1 / 1.870414552161

PV = $1.65738659187525 million

Rounding to 3 decimal places, we have:

PV = $1.657 million

Therefore, the present value of the sales price is $1.657 million.

b. Is the property investment attractive to you?

No. This is because an investment in the property will result in a negative net present value (NPV) of $0.443 million.

The negative net present value (NPV) of $0.443 million is determined as follows:

NPV = Present value of the sales price - Acquisition cost = $1.657 million - $2.1 million = -$0.443 million

The present value of the future cash flows can be calculated using the following steps:

Step 1: Calculation of the present value of the $110,000 per year rent

Since the rent is paid at end of each year, this can be calculated using the formula for calculating the present value of an ordinary annuity as follows:

PVR = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (2)

Where;

PVR = Present value of yearly rent = ?

P = Annual rent =$110,000

r = interest rate = 11%, or 0.11

n = number of years = 6

Substitute the values into equation (2) to have:

PVR = $110,000 * ((1 - (1 / (1 + 0.11))^6) / 0.11)

PVR = $110,000 * 4.23053785373826

PVR = $465,359.163911209

Converting to million and rounded to 3 decimal places, we have:

PVR = $0.465 million

Step 2: Calculation of the present value of the future cash flows

Present value of future cash flows = Present value sales price + Present value of annual rent ……. (3)

Where;

Present value sales price = $1.657 million, as already calculate in part a above

Present value of annual rent = PVR = $0.465 million

Substituting the values into equation (3), we have:

Present value of future cash flows = $1.657 million + $0.465 million = $2.122 million

Therefore, the present value of the future cash flows is $2.122 million.

c-2. Is the property investment attractive to you now?

Yes. This is because an investment in the property will result in a positive net present value (NPV) of $0.022 million.

The positive net present value (NPV) of $0.022 million is determined as follows:

NPV = Present value of tof the future cash flows - Acquisition cost = $2.122 million - $2.1 million = 0.0219999999999998 million

Converting to million and rounded to 3 decimal places, we have:

NPV = $0.022 million

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Answer:

Option A

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A - $90

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D - $126

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Answer:

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Rowland & Sons Air Transport Service, Inc., has been in operation for three years. The following transactions occurred in Fe

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Answer:

Journal entries

Feb 01

Rent Expense Debit $ 200

Cash Credit $ 200

Record payment of hanger rent for Feb

Feb 04

Cash Debit $ 800

Unearned Revenue Credit $ 800

Recording of cash received in advance

Feb 7

Cash Debit $ 900

Service Revenue Credit $ 900

To record service revenue received in cash

Feb 10

Salaries and wages Debit $ 1,200

Cash Credit $ 1,200

To record salaries paid for services received in February

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Advertisement expenses Debit $ 100

Cash Credit $ 100

To record payment of advertisement expenses

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Accounts Receivables Debit $ 1,200

Service Revenue Credit $ 1,700

To record services provided on cash and on credit

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Accounts Payable Credit $ 1,350

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Net Income $ 1,100

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