Laiho Industries 2007 and 2008 balance sheets (in thousands of dollars

QUESTION

Laiho Industries 2007 and 2008 balance sheets (in thousands of dollars) are shown.a. Sales for 2008 were $455,150,000, and EBITDA was 15% of sales. Furthermore, depreciation and amortization were 11% of net fixed assets, interest was $8,575,000, the corporate tax rate was 40%, and Laiho pays 40% of its net income in dividends. Given this information, construct the firms 2008 income statement.b. Construct the statement of stockholders equity for the year ending December 31, 2008, and the 2008 statement of cash flows.c. Calculate 2007 and 2008 net working capital and 2008 free cash flow.d. If Laiho increased its dividend payout ratio, what effect would this have on corporate taxes paid? What effect would this have on taxes paid by the companysshareholders?
Solution: Laiho Industries: Sales (in Thousands) =$455150 EBITDA as a percentage of sales =15% Depreciationas a % of fixed assets =11% Tax rate =40% Interest expense =$8575 Dividend payout ratio =40% (c) Net Working Capital (must be financed by external sources) Net Working Capital (NWC 2007) = Current assets Accounts Payable and Accruals NWC (2007) = $210,234 “ $45,765 NWC (2007) = $164,469 NWC (2008) = Current Assets Accounts Payable and Accruals NWC (2008) = $244,659 “ $61,238 NWC (2008) = $183,421 Free Cash Flow =¦

EBIT*(1-Tax Rate) + Depreciation “ Capital Expenditures + Net Working Capital Change FCF (2008) = $36,531 + $7,388 “ $32,117 + $18,952 = -$7150 (d) An increase in the firms dividend payout ratio would not have any effect on its corporate taxes paid. The companys shareholders would pay additional tax on the additional dividends they would receive.

ANSWER:

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