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

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)