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    Cumberland Industries: Retained earnings, cash flows, WC, EVA, MVA,WACC

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    Cumberland Industries most recent balance sheets in thousands of dollars are shown below and in partial model in file

    a. The company's sales for 2005 were $455,150,000 and EBITDA was 15% of sales. Furthermore depreciation amounted to 11% of net fixed assets, interest charges were $8,575,000, the state plus federal corporate tax rate was 40% and Cumberland pays 40% of its net income out in dividends. Given this information construct Cumberland's income statement....Please see attached
    b. Next construct the firm's statement of retained earnings for the year ending 12-31-05 and then its 2005 statement of cash flows
    c. Calculate net operating working capital, total net operating capital, net operating profit after taxes, and free cash flow for 2005.
    d. Calculate the firm's EVA and MVA for 2005. Assume that Cumberland had 10 million shares outstanding that the year end closing stock price was $17.25 per share, and after tax cost capital was (WACC) 12%.

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    Solution Preview

    Attached is the Excel file with the computations and formulas.

    Chapter 3. Ch 03-10 Build a Model

    Here are the balance sheets as given in the problem:

    Cumberland Industries December 31 Balance Sheets
    (in thousands of dollars)
    2005 2004 Change
    Cash and cash equivalents $91,450 $74,625 $16,825
    Short-term investments $11,400 $15,100 -$3,700
    Accounts Receivable $103,365 $85,527 $17,838
    Inventories $38,444 $34,982 $3,462
    Total current assets $244,659 $210,234
    Net fixed assets $67,165 $42,436 $24,729
    Total assets $311,824 $252,670

    Liabilities and equity
    Accounts payable $30,761 $23,109 $7,652
    Accruals $30,477 $22,656 $7,821
    Notes payable $16,717 $14,217 $2,500
    Total current liabilities $77,955 $59,982
    Long-term debt $76,264 $63,914 $12,350
    Total liabilities $154,219 $123,896
    Common stock $100,000 $90,000 $10,000
    Retained Earnings $57,605 $38,774 $18,831
    Total common equity $157,605 $128,774
    Total liabilities and equity $311,824 $252,670

    a. The company's 2005 sales were $455,150,000, and EBITDA was 15 percent of sales. Furthermore, depreciation amounted to 11 percent of net fixed assets, interest charges were $8,575,000, the state-plus-federal corporate tax rate was 40 percent, and Cumb

    The input information required for the problem is outlined in the "Key Input ...

    Solution Summary

    The solution examines retained earnings, cash flows, WC, EVA, MVA and WACC for Cumberland Industries.