Net Income Approach Problems And Solutions Pdf

The capital structure of a company firm.

Net income approach problems and solutions pdf. Net income ni approach this theory was propounded by david durand and also known as fixed ke theory. In above example her net taxable income is rs 7 30 000. However from the balance sheet you can also calculate net income as total net worth plus cash dividends less issued stock. Compute the value of the firm.

We can use a similar approach to go from cost of goods sold to cash payments. Capital structure is the proportion of debt and equity in which a corporate finances its business. According to this approach the value of the firm is increase and decrease overall cost of capital by increasing the proportion of debt financing in capital structure. Net income approach questions and answers.

5 00 000 in 10 debentures. X is 63 years old. Net income approach suggests that value of the firm can be increased by decreasing the overall cost of capital wacc through higher debt proportion. And while calculating national income you need to calculate the net exports nx.

In this problem there are no cash dividends and no new stock issued. Now while calculating national income using the expenditure approach you need to also deduct depreciation on capital assets and indirect taxes. Expenses for the year ending december 31 20x7 154 000. Net income approach illustration 1.

Problems solutions posted in questions by james hobert on september 11 2018 her owner s equity decreased by 14 000 for the operating expenses recorded on august 10th by 400 for the interest expense recorded on august 24th and by 10 000 for the cash dividend recorded on august 29th. Net income approach 1. You usually calculate total net income as total revenues less total expenses. An amount paid by company as dividend to preference shareholder is known as cost of preference share capital preference share is a small unit of a company s capital which bears fixed rate of dividend and holder of it gets dividend when company earn profit.

Use the following data to construct a statement of cash flows using the direct and indirect methods. There are various theories which propagate the ideal capital mix capital structure for a firm. Using the expenditure approach national income can be represented as. Solution solution 4 20x6 retained earnings december 31 20x6 143 500 plus.

Net income approach by. The balance sheet account affected. As a result the entire equity balance is due to net income. The cost of equity capital or capitalization rate is 12 5.

To reconcile net income to cash flows from operations. Dividends paid during 20x6 35 000 net income for the year ending december 31 20x6 178 500 20x7 revenues for the year ending december 31 20x7 315 000 less. Mehta company limited is expecting an annual ebit of rs. The company has rs.