Year 2 (Forecasted) Net sales 1,200,000 Less: Operating costs, except depreciation and amortization Less: Depreciation and amortization expenses Operating income (or EBIT) Less: Interest expense Pre-tax Income (or EBT) Less: Taxes (40%) Earnings after taxes Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Cold Goose Metal Works Inc. Income Statement for Year Ending December 31 Year 1 $30,000,000 21,000,000 1,200,000 $7,800,000 780,000 7,020,000 2,800,000 $4,212,000 200,000 4,012,000 1,263,600 $2,748,400 Contribution to retained earnings $3,387,850 Given the results of the previous income statement calculations, complete the following statements: In Year 2, if Cold Goose has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends. If Cold Goose has 400,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from in Year 1 to in Year 2. Cold Goose's earnings before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to in Year 2. to say that Cold Goose's net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company's annual contribution to retained earnings, $2,748,400 and $3,387,850, respectively. This is because of the items reported in the income statement involve payments and receipts of cash. . It is 6. Free cash flow Accounting statements represent a company's earnings, but this is not the real cash that a company generates. Earnings data can be manipulated and can be deceiving. Thus, corporate decision makers and security analysts focus on the free cash flow that a firm generates to analyze the company's real cash position. Which of the following statements best describes free cash flow? The amount of a firm's available cash that can be used without harming operations or the ability to produce future cash flows The amount of a firm's available cash used to write off capital expenditures and depreciation Suppose you are the only owner of a chain of coffee shops near universities. Your current cafs are doing well, but you are interested in starting a fine dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you with the following data on your current financial performance: Financial update as of June 15 Your existing business generates $135,000 in EBIT. The corporate tax rate applicable to your business is 35% . The depreciation expense reported in the financial statements is $25,714. . You don't need to spend any money for new equipment in your existing cafs; however, you do need $20,250 of additional cash. You also need to purchase $10,000 in additional supplies-such as cloth, tableclothes and napkins, and more formal tableware-on credit. . It is also estimated that your accruals, including taxes and wages payable, will increase by $6,750. Based on your evaluation you have in free cash flow. Can a company have negative free cash flow? No Yes 2. Balance sheet The balance sheet provides a snapshot of the financial condition of a company. Investors and analysts use the information given on the balance sheet and other financial statements to make several interpretations regarding the company's financial condition and performance. Cold Goose Metal Works Inc. is a hypothetical company. Suppose it has the following balance sheet items reported at the end of its first year of operation. For the second year, some parts are still incomplete. Use the information given to complete the balance sheet. Year 1 $0 996 Cold Goose Metal Works Inc.Balance Sheet for Year Ending December 31 (Millions of Dollars) Year 2 Year 1 Year 2 Assets Liabilities and equity Current assets: Current liabilities: Cash and equivalents $2,767 Accounts payable Accounts receivable 1,266 1,013 Accruals 176 Inventories 3,712 2,970 Notes payable Total current assets $8,437 $6,750 Total current liabilities Net fixed assets: Long-term debt 3,515 Net plant and equipment $8,250 Total debt $4,687 Common equity: Common stock 9,141 Retained earnings Total common equity $14,063 Total assets $18,750 $15,000 Total liabilities and equity $18,750 $0 0 937 $937 2,813 $3,750 7,313 3,937 $11,250 $15,000 Given the information in the preceding balance sheet-and assuming that Cold Goose Metal Works Inc. has 50 million shares of common stock outstanding-read each of the following statements, then identify the selection that best interprets the information conveyed by the balance sheet Statement 1Cold Goose's pool of relatively liquid assets, which are available to support the company's current and future sales, This statement is , because: Cold Goose's total current asset balance actually increased from $6,750 million to $8,437 million between Year 1 and Year 2 O Cold Goose's total current liabilities balance decreased by $1,687 million between Year 1 and Year 2 Cold Goose's total current liabilities balance increased from $1,013 million to $1,266 million between Year 1 and Year 2 Statement #2: Over the past two years, Cold Goose Metal Works Inc. has relied more on the use of short-term debt than on long-term debt financing This statement is 2, because: Cold Goose's total current liabilities increased by $235 million, while its use of long-term debt increased by $702 million Cold Goose's total notes payable increased by $59 million, while its common stock account increased by $1,828 million Cold Goose's total current liabilities decreased by $235 million, while its long-term debt account decreased by $702 million Statement #3: The book value of one of Cold Goose's fixed assets is calculated as the original cost of the asset minus its annual depreciation expense. This statement is because: Statement #3: The book value of one of Cold Goose's fixed assets is calculated as the original cost of the asset minus its annual depreciation expense. This statement is , because: An asset's net book value is calculated by subtracting its annual depreciation expense from its total historic and installation costs An asset's net book value is calculated by subtracting its accumulated depreciation expense from its total historic and installation costs An asset's net book value is calculated by adding its annual depreciation expense to its total historic and installation costs Based on your understanding of the different items reported in the balance sheet and the information they provide, which statement regarding Cold Goose Metal Works Inc.'s balance sheet is consistent with U.S. Generally Accepted Accounting Principles (GAAP)? The company's assets should be listed from those carrying the largest balance to those with the smallest balance. The company's assets should be listed in the order in which they are to be converted into cash. The company's assets should be listed in alphabetical order. Year 2 (Forecasted) Net sales 1,200,000 Less: Operating costs, except depreciation and amortization Less: Depreciation and amortization expenses Operating income (or EBIT) Less: Interest expense Pre-tax Income (or EBT) Less: Taxes (40%) Earnings after taxes Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Cold Goose Metal Works Inc. Income Statement for Year Ending December 31 Year 1 $30,000,000 21,000,000 1,200,000 $7,800,000 780,000 7,020,000 2,800,000 $4,212,000 200,000 4,012,000 1,263,600 $2,748,400 Contribution to retained earnings $3,387,850 Given the results of the previous income statement calculations, complete the following statements: In Year 2, if Cold Goose has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends. If Cold Goose has 400,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from in Year 1 to in Year 2. Cold Goose's earnings before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to in Year 2. to say that Cold Goose's net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company's annual contribution to retained earnings, $2,748,400 and $3,387,850, respectively. This is because of the items reported in the income statement involve payments and receipts of cash. . It is 6. Free cash flow Accounting statements represent a company's earnings, but this is not the real cash that a company generates. Earnings data can be manipulated and can be deceiving. Thus, corporate decision makers and security analysts focus on the free cash flow that a firm generates to analyze the company's real cash position. Which of the following statements best describes free cash flow? The amount of a firm's available cash that can be used without harming operations or the ability to produce future cash flows The amount of a firm's available cash used to write off capital expenditures and depreciation Suppose you are the only owner of a chain of coffee shops near universities. Your current cafs are doing well, but you are interested in starting a fine dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you with the following data on your current financial performance: Financial update as of June 15 Your existing business generates $135,000 in EBIT. The corporate tax rate applicable to your business is 35% . The depreciation expense reported in the financial statements is $25,714. . You don't need to spend any money for new equipment in your existing cafs; however, you do need $20,250 of additional cash. You also need to purchase $10,000 in additional supplies-such as cloth, tableclothes and napkins, and more formal tableware-on credit. . It is also estimated that your accruals, including taxes and wages payable, will increase by $6,750. Based on your evaluation you have in free cash flow. Can a company have negative free cash flow? No Yes 2. Balance sheet The balance sheet provides a snapshot of the financial condition of a company. Investors and analysts use the information given on the balance sheet and other financial statements to make several interpretations regarding the company's financial condition and performance. Cold Goose Metal Works Inc. is a hypothetical company. Suppose it has the following balance sheet items reported at the end of its first year of operation. For the second year, some parts are still incomplete. Use the information given to complete the balance sheet. Year 1 $0 996 Cold Goose Metal Works Inc.Balance Sheet for Year Ending December 31 (Millions of Dollars) Year 2 Year 1 Year 2 Assets Liabilities and equity Current assets: Current liabilities: Cash and equivalents $2,767 Accounts payable Accounts receivable 1,266 1,013 Accruals 176 Inventories 3,712 2,970 Notes payable Total current assets $8,437 $6,750 Total current liabilities Net fixed assets: Long-term debt 3,515 Net plant and equipment $8,250 Total debt $4,687 Common equity: Common stock 9,141 Retained earnings Total common equity $14,063 Total assets $18,750 $15,000 Total liabilities and equity $18,750 $0 0 937 $937 2,813 $3,750 7,313 3,937 $11,250 $15,000 Given the information in the preceding balance sheet-and assuming that Cold Goose Metal Works Inc. has 50 million shares of common stock outstanding-read each of the following statements, then identify the selection that best interprets the information conveyed by the balance sheet Statement 1Cold Goose's pool of relatively liquid assets, which are available to support the company's current and future sales, This statement is , because: Cold Goose's total current asset balance actually increased from $6,750 million to $8,437 million between Year 1 and Year 2 O Cold Goose's total current liabilities balance decreased by $1,687 million between Year 1 and Year 2 Cold Goose's total current liabilities balance increased from $1,013 million to $1,266 million between Year 1 and Year 2 Statement #2: Over the past two years, Cold Goose Metal Works Inc. has relied more on the use of short-term debt than on long-term debt financing This statement is 2, because: Cold Goose's total current liabilities increased by $235 million, while its use of long-term debt increased by $702 million Cold Goose's total notes payable increased by $59 million, while its common stock account increased by $1,828 million Cold Goose's total current liabilities decreased by $235 million, while its long-term debt account decreased by $702 million Statement #3: The book value of one of Cold Goose's fixed assets is calculated as the original cost of the asset minus its annual depreciation expense. This statement is because: Statement #3: The book value of one of Cold Goose's fixed assets is calculated as the original cost of the asset minus its annual depreciation expense. This statement is , because: An asset's net book value is calculated by subtracting its annual depreciation expense from its total historic and installation costs An asset's net book value is calculated by subtracting its accumulated depreciation expense from its total historic and installation costs An asset's net book value is calculated by adding its annual depreciation expense to its total historic and installation costs Based on your understanding of the different items reported in the balance sheet and the information they provide, which statement regarding Cold Goose Metal Works Inc.'s balance sheet is consistent with U.S. Generally Accepted Accounting Principles (GAAP)? The company's assets should be listed from those carrying the largest balance to those with the smallest balance. The company's assets should be listed in the order in which they are to be converted into cash. The company's assets should be listed in alphabetical order