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Questions 19 & 21

long-term deb 18. Residual Claims Prescott, Inc., is obligated to pay its creditors $13,500 very soon, a. What is the market value of the shareholders' equity if assets have a market value of $14.900? b. What if assets equal $10,700? 19. Net Income and OCF During 2020, Raines Umbrella Corp. had sales of $890,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $604,000, $151,000, and $93.000, respectively. In addition, the company had an interest expense of $74,000 and a tax rate on 21 percent. (Assume that interest is fully deductible.) a. What was the company's net income for 2020? b. What was its operating cash flow? c. Explain your results in (a) and (b). 20. Accounting Values versus Cash Flows In the previous problem, suppose Raines Umbrella Corp. paid out $95,000 in cash dividends. Is this possible? If net capital spending and the change in net working capital were both zero, and if no new stock was issued during the year, what was the change in the firm's long-term debt account? 21. Calculating Cash Flows Stackhouse Industries had the following operating results for 2020: sales = $53,520; cost of goods sold = $36,800; depreciation expense = $5,560; interest expense = $1,260; dividends paid = $2,730. At the beginning of the year, net fixed assets were $33,020, current assets were $8,210, and current liabilities were $5,490. At the end of the year, net fixed assets were $42,730, current assets were $9,260, and current liabilities were $5,780. The tax rate was 25 percent. a. What was net income for 2020? b. What was the operating cash flow for 2020? c. What was the cash flow from assets for 2020? Is this possible? Explain. view

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