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Thomson Corporation had the following operating results for 2019 (in 000’s): sales of $30,600; cost of...

Thomson Corporation had the following operating results for 2019 (in 000’s): sales of $30,600; cost of goods sold of $21,800; depreciation expense of $4,200; interest expense of $1,040; dividends paid of $1,000. At the beginning of the year, net fixed assets were $23,600, current assets were $6,800, and current liabilities were $3,800. At the end of the year, net fixed assets were $25,800, current assets were $7,900, and current liabilities were $3,900. Total taxes are $1,500 ($1,424 paid, and $76 deferred).

a. What is the net income for 2019?

b. What is the operating cash flow for 2019?

c. What is the cash flow from assets for 2019? Is this possible? Explain

d. If no new debt was issued during the year, what is the cash flow to creditors? What is the cash flow to shareholders? Explain and interpret the positive and negative signs of your answers in (a) through (d)

Expert Solution

Answer : Below is the table showing Calculation of Net Income :

	Amount
Sales	30600
Less :Cost of Goods Sold	21800
Gross Profit	8800
Depreciation Expense	4200
Operating Income (EBIT)	4600
Interest Expenses	1040
Earning Before Tax (EBT)	3560
Income Tax	1500
Net Income	2060

(b.) Calculation of Operating Cash Flow

Operating cash Flow = EBIT - Taxes + Depreciation

= 4600 - 1500 + 4200

= 7300

(c.) Calculation of Cash Flow from Asset

Cash Flow from Asset = Operating Cash Flow - Change in Net Working Capital - Capital Spending

Change in Net Working Capital = Change in Current assets - Change in Current Liabilities

= (7900 - 6800) - (3900 - 3800)

= 1000

Net Capital Spending= Net Asset at the end of year + Depreciation Expenses - Net asset at the beginning

= 25800 + 4200 - 23600

= 6400

Cash Flow from Asset = 7300 - 1000 - 6400 = -100

(d.) If no new debt was issued during the year,

Cash flow to creditors = Interest Paid = -1040

Cash Flow to shareholder = Cash Flow from Asset - Cash Flow to creditor

= -100 - 1040

= -1140

Also can be calculated as the cash flow to stockholders as:

Cash flow to stockholders = Dividends - Net new equity

Net new equity = $1000 - (-1140) = 2140

Net Income and Operating Cash of the firm are positive as they are able to generate sufficient Net Income. However Cash Flow from Asset is negative as the firm invested in Net working Capital and Capital Speding more .

jeff jeffy answered 2 years ago

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