# P4–5 Classifying inflows and outflows of cash Classify each of

P45 Classifying inflows and outflows of cash Classify each of the following items as an inflow (I) or an outflow (O) of cash, or as neither (N).P46 Finding operating and free cash flows Consider the following balance sheets and selected data from the income statement of Keith Corporation.a. Calculate the firms net operating profit after taxes (NOPAT) for the year ended December 31, 2015, using Equation 4.1.b. Calculate the firms operating cash flow (OCF) for the year ended December 31, 2015, using Equation 4.3.c. Calculate the firms free cash flow (FCF) for the year ended December 31, 2015, using Equation 4.4.d. Interpret, compare, and contrast your cash flow estimates in parts b and c.P49 Cash budget: Basic Grenoble Enterprises had sales of \$50,000 in March and \$60,000 in April. Forecast sales for May, June, and July are \$70,000, \$80,000, and \$100,000, respectively. The firm has a cash balance of \$5,000 on May 1 and wishes to maintain a minimum cash balance of \$5,000. Given the following data, prepare and interpret a cash budget for the months of May, June, and July.(1) The firm makes 20% of sales for cash, 60% are collected in the next month, and the remaining 20% are collected in the second month following sale.(2) The firm receives other income of \$2,000 per month.(3) The firms actual or expected purchases, all made for cash, are \$50,000, \$70,000, and \$80,000 for the months of May through July, respectively.(4) Rent is \$3,000 per month.(5) Wages and salaries are 10% of the previous months sales.(6) Cash dividends of \$3,000 will be paid in June.(7) Payment of principal and interest of \$4,000 is due in June.(8) A cash purchase of equipment costing \$6,000 is scheduled in July.(9) Taxes of \$6,000 are due in June.P415 Pro forma income statement The marketing department of Metroline Manufacturing estimates that its sales in 2016 will be \$1.5 million. Interest expense is expected to remain unchanged at \$35,000, and the firm plans to pay \$70,000 in cash dividends during 2016. Metroline Manufacturings income statement for the year ended December 31, 2015, and a breakdown of the firms cost of goods sold and operating expenses into their fixed and variable components are given below.a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2016.b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2016.c. Compare and contrast the statements developed in parts a and b. Which statement probably provides the better estimate of 2016 income? Explain why.P418 Pro forma balance sheet Peabody & Peabody has 2015 sales of \$10 million. It wishes to analyze expected performance and financing needs for 2017, which is 2 years ahead. Given the following information, respond to parts a and b.(1) The percents of sales for items that vary directly with sales are as follows: Accounts receivable, 12% Inventory, 18% Accounts payable, 14% Net profit margin, 3%(2) Marketable securities and other current liabilities are expected to remain unchanged.(3) A minimum cash balance of \$480,000 is desired.(4) A new machine costing \$650,000 will be acquired in 2016, and equipment costing \$850,000 will be purchased in 2017. Total depreciation in 2016 is forecast as \$290,000, and in 2017 \$390,000 of depreciation will be taken.(5) Accruals are expected to rise to \$500,000 by the end of 2017.(6) No sale or retirement of long-term debt is expected.(7) No sale or repurchase of common stock is expected.(8) The dividend payout of 50% of net profits is expected to continue.(9) Sales are expected to be \$11 million in 2016 and \$12 million in 2017.(10) The December 31, 2015, balance sheet follows.a. Prepare a pro forma balance sheet dated December 31, 2017.b. Discuss the financing changes suggested by the statement prepared in part a.P4-5ItemCashAccounts PayableNotes PayableLong-term DebtInventoryFixed AssetsChange(\$) Item100 Accounts Receivable-1,000 Net Profits500 Depreciation-2,000 Repurchase of Stock200 Cash Dividends400 Sale of StockChange (\$)-7006001006008001,000 P4-6Keith Corporation Balance SheetsAssetsCashMarketable SecuritiesAccounts ReceivableInventoriesTotal Current AssetsGross Fixed AsstesLess: Accumulated DepreciationNet Fixed AssetsTotal Assets31-Dec2015\$1,5001,8002,0002,900\$8,200\$29,50014,700\$14,800\$23,0002014\$1,0001,2001,8002,800\$6,800\$28,10013,100\$15,000\$21,800Liabilities and Stockholders’ EquityAccounts PayableNotes PayableAccrualsTotal Current LiabilitiesLong-term DebtTotal LiabilitiesCommon StockRetained EarningsTotal Stockholders’ EquityTotal Liabilities and Stockholders’ Equity\$1,6002,800200\$4,6005,000\$9,600\$10,0003,400\$13,400\$23,000\$1,5002,200300\$4,0005,000\$9,000\$10,0002,800\$12,800\$21,800Keith Corporation Income Statement Date (2015)Depreciation Expense\$1,600Earnings Before Interest and Taxes (EBIT)2,700Interest Expense367Net Profits after Taxes1,400Tax rate40% P4-9 P4-15Metroline ManufacturingIncome Statement for the Year Ended December 31, 2015Metroline Manufacturing Breakdown of Costs and ExpeFor the Year Ended December 31, 2015Sales RevenueLess: Cost of Goods SoldGross ProfitsLess: Operating ExpensesOperating ProfitsLess: Interest ExpenseNet Profits before TaxesLess: Taxes (rate = 40%)Net Profits after TaxesLess: Cash DividendsTo Retained EarningsCost of goods soldFixed CostVariable CostTotal CostsOperating ExpensesFixed ExpensesVariable ExpensesTotal Expenses\$1,400,000910,000\$490,000120,000\$370,00035,000\$335,000134,000\$201,00066,000\$135,000210,000\$700,000\$910,000\$36,00084,000\$120,000 d Expenses Into Fixed and Variable Components P4-18Peabody & Peabody Balance Sheet December 31, 2015 (\$000)AssetsLiabilities and Stockholders’ EquityCash\$400 Accounts PayableMarketable Securities200 AccrualsAccounts Receivable1,200 Other Current LiabilitiesInventories1,800Total Current LiabilitiesTotal Current Assets\$3,600 Long-term DebtNet Fixed Assets4,000Total LiabilitiesTotal Assets\$7,600 Common EquityTotal Liabilities and Stockholders’ Equity\$1,40040080\$1,8802,0003,8803,720\$7,600

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