"20. Nova Electrics anticipated cash flow from operating activities of $6 million in 2008. It willneed to spend $1.2 million on capital investments in order to remain competitive within theindustry. Common stock dividends are projected at $.4 million and preferred stockdividends at $.55 million. a. What is the firm’s projected free cash flow for the year 2008? b. What does the concept of free cash flow represent?2-20. Solution:Nova Electronicsa. Cash flow from operations activities $6.00 million- Capital Expenditures1.20- Common stock dividends .40- Preferred stock dividends .55Free cash flow $3.85 millionb. Free cash flow represents the funds that are available forspecial financial activities, such as a leveraged buyout,increased dividends, common stock repurchases, acquisitions,or repayment of debt.S2-26 21. The Rogers Corporation has a gross profit of $880,000 and $360,000 in depreciationexpense. The Evans Corporation also has $880,000 in gross profit, with $60,000 indepreciation expense. Selling and administrative expense is $120,000 for each company.Given that the tax rate is 40 percent, compute the cash flow for both companies.Explain the difference in cash flow between the two firms.2-21. Solution:Rogers Corporation? Evans CorporationRogers EvansGross profit ......................................$880,000 $880,000Selling and adm. expense ............120,000 120,000Depreciation .....................................360,000 60,000Operating profit ...............................$400,000 $700,000Taxes (40%) .....................................160,000 280,000Earnings after taxes..........................$240,000 $420,000Plus depreciation expense ................$360,000 $60,000Cash Flow ........................................$600,000 $480,000Rogers had $300,000 more in depreciation which provided$120,000 (0.40 × $300,000) more in cash flow.S2-27 22. Horton Electronics has current assets of $320,000 and fixed assets of $640,000. Currentliabilities are $90,000 and long-term liabilities are $160,000. There is $90,000 in preferredstock outstanding and the firm has issued 40,000 shares of common stock. Compute bookvalue (net worth) per share.2-22. Solution:Horton Energy CompanyCurrent assets ...................................................$320,000Fixed assets ......................................................640,000Total assets.......................................................$960,000?Current liabilities ..........................................90,000?Long-term liabilities .....................................160,000Stockholders’ equity ........................................$710,000?Preferred stock obligation .............................90,000Net worth assigned to common .......................$620,000 Common shares outstanding ............................40,000 Book value (net worth) per share.....................$15.50S2-28 23. The Holtzman Corporation has assets of $400,000, current liabilities of $50,000, and long- term liabilities of $100,000. There is $40,000 in preferred stock outstanding; 20,000 sharesof common stock have been issued. a. Compute book value (net worth) per share. b. If there is $22,000 in earnings available to common stockholders and Holtzman’s stockhas a P/E of 18 times earnings per share, what is the current price of the stock? c. What is the ratio of market value per share to book value per share?2-23. Solution:Holtzman Corporationa. Total assets ................................................$400,000–Current liabilities ....................................50,000–Long-term liabilities................................100,000–Stockholders’ equity ...............................$250,000–Preferred stock ........................................40,000Net worth assigned to common ..............$210,000Common shares outstanding ..............20,000Book values (net worth) per share ..........$10.50b. Earnings available to common ..................$22,000Shares outstanding ....................................20,000Earnings per share .....................................$1.10P/E ratio × earnings per share = price18 × $1.10 = $19.80 c. Market value per share (price) to book value pershare $19.80/$10.50 = 1.89S2-29 24. Bradley Gypsum Company has assets of $1,900,000, current liabilities of $700,000, andlong-term liabilities of $580,000. There is $170,000 in preferred stock outstanding; 30,000shares of common stock have been issued. a. Compute book value (net worth) per share. b. If there is $42,000 in earnings available to common stockholders and Bradley’s stockhas a P/E of 15 times earnings per share, what is the current price of the stock? c. What is the ratio of market value per share to book value per share?2-24. Solution:Bradley Gypsum Companya. Total assets ................................................$1,900,000–Current liabilities ....................................700,000–Long-term liabilities................................ 580,000Stockholders’ equity ...............................$ 620,000–Preferred stock ........................................ 170,000Net worth assigned to common ..............$ 450,000Common shares outstanding ...................30,000Book values (net worth) per share ..........$ 15.00b. Earnings available to common stockholders ..........................................$ 42,000Shares outstanding ....................................30,000Earnings per share .....................................$ 1.40 P/E ratio × Earnings per share = Price15 × $1.40 = $21.00 c. Market value per share (price) to book value per share$21.00/$15.00 = 1.40 S2-30 "