Question

During 2018, Raines Umbrella Corp. had sales of $733,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $562,000, $93,000, and $128,000, respectively. In addition, the company had an interest expense of $98,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.) Assume Raines Umbrella Corp. paid out $24,000 in cash dividends. If spending on net fixed assets and net working capital was zero, and if no new stock was issued during the year, what is the firm's net new long-term debt?

Answer 1

Step-by-step explanation:

Here, Free Cash flow to Equity holder,

FCFE = Dividend paid to the shareholders = $24,000

Let's put together all the elements of Income statement given to us to create an Income Statement.

Please see the Income Statement created based on the information in the question:

Parameter Linkage $

Sales S 750,000

[-] Cost of Goods Sold COGS 540,000

[-] Selling, general & admin expenses SGA 85,000

[-] Depreciation D 190,000

Operating income EBIT = S - COGS - SGA - D (65,000)

[-] Interest I 65,000

Earnings before taxes EBT = EBIT - I (130,000)

Taxes T = max (21% x EBT,0) -

Net Income NI = EBT - T (130,000)