Question

South Sea Baubles has the following (incomplete) balance sheet and income statement. BALANCE SHEET AT END OF YEAR (Figures in $ millions) Assets 2015 2016 Liabilities and Shareholders' Equity 2015 2016 Current assets $ 105 $ 215 Current liabilities $ 80 $ 105 Net fixed assets 950 1,050 Long-term debt 675 900 INCOME STATEMENT, 2016 (Figures in $ millions) Revenue $ 2,025 Cost of goods sold 1,105 Depreciation 425 Interest expense 255 a&b. What is shareholders’ equity in 2015 and 2016? (Enter your answers in millions.) c&d. What is net working capital in 2015 and 2016? (Enter your answers in millions.) e. What are taxes paid in 2016? Assume the firm pays taxes equal to 35% of taxable income. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) f. What is cash provided by operations during 2016? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) g. Net fixed assets increased from $950 million to $1,050 million during 2016. What must have been South Sea’s gross investment in fixed assets during 2016? (Enter your answer in millions.)

Answer 1

South Sea Baubles

1. Shareholders' equity in 2015 and 2016 = $300 and $260 respectively.

2. Net working capital in 2015 and 2016 = $25 and $110 respectively.

3. Taxes paid in 2016 = $84.

4. Cash provided by operations during 2016 = $666.

5. South Sea's gross investment in fixed assets = $100 ($105 - $95).

Step-by-step explanation:

a) Data and Calculations:

BALANCE SHEET AT END OF YEAR (Figures in $ millions)

Assets 2015 2016

Current assets $ 105 $ 215

Net fixed assets 950 1,050

Total assets $1,055 $1,265

Current liabilities $ 80 $ 105

Long-term debt 675 900

Total liabilities $755 $1,005

Shareholders' equity $300 $260

Liabilities and Shareholders' Equity $1,055 $1,265

INCOME STATEMENT, 2016 (Figures in $ millions)

Revenue $ 2,025

Cost of goods sold 1,105

Gross profit $ 920

Depreciation 425

EBIT $495

Interest expense 255

Profit before taxes $240

Income taxes (35%) 84

Net Income $ 156

Cash provided by operations:

Net income = $156

Depreciation 425

Working capital:

Current assets 110

Current liabilities (25)

Net cash $666