Question

Cusic Industries had the following operating results for 2019: sales = $33,813; cost of goods sold = $23,967; depreciation expense = $5,947; interest expense = $2,685; dividends paid = $1,951. At the beginning of the year, net fixed assets were $19,890, current assets were $7,019, and current liabilities were $3,962. At the end of the year, net fixed assets were $24,457, current assets were $8,654, and current liabilities were $4,628. The tax rate was 22 percent. a. What is net income for 2019? (Do not round intermediate calculations.) b. What is the operating cash flow for 2019? (Do not round intermediate calculations.) c. What is the cash flow from assets for 2019? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations.) d-1. If no new debt was issued during the year, what is the cash flow to creditors? (Do not round intermediate calculations.) d-2. If no new debt was issued during the year, what is the cash flow to stockholders? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations.)

Answer 1

Answer a.

EBIT = Sales - Costs of Goods Sold - Depreciation
EBIT = $33,813 - $23,967 - $5,947
EBIT = $3,899

EBT = EBIT - Interest Paid
EBT = $3,899 - $2,685
EBT = $1,214

Taxes = EBT * Tax Rate
Taxes = $1,214 * 22%
Taxes = $267

Net Income = EBT - Taxes
Net Income = $1,214 - $267
Net Income = $947

Answer b.

Operating Cash Flow = EBIT + Depreciation - Taxes
Operating Cash Flow = $3,899 + $5,947 - $267
Operating Cash Flow = $9,579

Answer c.

Change in Net Working Capital = Ending Net Working Capital - Beginning Net Working Capital
Change in Net Working Capital = (Ending Current Assets - Ending Current Liabilities) - (Beginning Current Assets - Beginning Current Liabilities)
Change in Net Working Capital = ($8,654 - $4,628) - ($7,019 - $3,962)
Change in Net Working Capital = $969

Net Capital Spending = Ending Net Fixed Assets + Depreciation - Beginning Net Fixed Assets
Net Capital Spending = $24,457 + $5,947 - $19,890
Net Capital Spending = $10,514

Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Change in Net Working Capital
Cash Flow from Assets = $9,579 - $10,514 - $969
Cash Flow from Assets = -$1,904

Answer d-1.

Cash Flow to Creditors = Interest Paid - Net New Long-term Debt
Cash Flow to Creditors = $2,685 - $0
Cash Flow to Creditors = $2,685

Answer d-2.

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders
-$1,904 = $2,685 + Cash Flow to Stockholders
Cash Flow to Stockholders = -$4,589