Sunset Boards

1. The income statement for each year will look like this:

Income statement

2009 2010

Sales $277,855 $338,688

Cost of goods sold 141,641 178,839

Selling & administrative 27,854 36,355

Depreciation 39,983 45,192

EBIT $68,377 $78,302

Interest 8,702 9,962

EBT $59,675 $68,340

Taxes 11,935 13,668

Net income $47,740 $54,672

Dividends $23,870 $27,336

Addition to retained earnings 23,870 27,336

2. The balance sheet for each year will be:

Balance sheet as of Dec. 31, 2009

Cash $20,437 Accounts payable $36,120

Accounts receivable 14,482 Notes payable 16,464

Inventory 30,475 Current liabilities $52,584

Current assets $65,394

Long-term debt $89,040

Net fixed assets $176,400 Owners' equity $100,170

Total assets $241,794 Total liab. & equity $241,794

In the first year, equity is not given. Therefore, we must calculate equity as a plug variable. Since total liabilities & equity is equal to total assets, equity can be calculated as:

Equity = $241,794 - 89,040 - 52,854

Equity = $100,170

Balance sheet as of Dec. 31, 2010

Cash $30,880 Accounts payable $40,908

Accounts receivable 18,785 Notes payable 17,976

Inventory 41,821 Current liabilities $58,884

Current assets $91,486

Long-term debt $102,480

Net fixed assets $214,184 Owners' equity $144,306

Total assets $305,670 Total liab. & equity $305,670

The owner's equity for 2010 is the beginning of year owner's equity, plus the addition to retained earnings, plus the new equity, so:

Equity = $100,170 + 27,336 + 16,800

Equity = $144,306

3. Using the OCF equation:

OCF = EBIT + Depreciation - Taxes

The