Walk through a company's financial statements over two years if it bought $100 asset with 50% debt 50% cash
Hey all,
Novice currently running through some technicals and I am unsure about my process/feel like I may be missing some steps here. Would really appreciate some feedback! Thanks.
Assuming 10% depreciation, 10% interest, 50% tax rate, no principal paid off. I broke it down with immediate then from year 1 to year 2....
here's my thinking: (initially/year 1) IS: pretax income: down 50 net income: down 25 CF: NI down 25 CF investing down 50 CF financing up 50 change in cash: down 25 BS: cash down 25 pp&e up 50 final assets up 25 debt up 50 retained earnings down 25 L&SE up 25 balance
from year 1 to year 2 IS: depreciation 10 interest 5 pretax down by 15 net income down by 7.5 CF: NI down by 7.5 add back depreciation +10 change in cash: up 2.5 BS: cash up 2.5 PP&E down 10 assets down 7.5 RE down 7.5 L&SE down 7.5 balance
Y0 (date of purchase)
IS: No change CFS: Raise 50 of debt, pay out 50 immediately + 50 cash you pay out net cash is down 50 BS: Liabilities up 50, Cash down 50, asset up 100 so net assets up 50 balance
Y1
IS: Interest expense of $5 (50x10%) , depreciation expense of $10 (100x10%)
After tax net income down 7.5
CFS: Net income down 7.5, add back $10 of depreciation, cash up 2.5
BS: Cash up 2.5, net income/SE down 7.5, Asset down 10. Net assets down 7.5, L/SE also down 7.5
You'd repeat the process for Y1 for Y2
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