Question

Schwert Corp. shows the following information on its 2019 income statement: sales = $242,000; costs = $153,000; other expenses = $7,900; depreciation expense = $17,700; interest expense = $14,100; taxes = $17,255; dividends = $11,000. In addition, you’re told that the firm issued $5,600 in new equity during 2019 and redeemed $4,100 in outstanding long-term debt. (Do not round intermediate calculations.)

b. What is the 2019 cash flow to creditors?

d. If net fixed assets increased by $22,000 during the year, what was the addition to net working capital (NWC)?

Answer 1

Answer of Part b:

Cash flow to Creditors = Interest – New long term Debt
Cash flow to Creditors = $14,100 – (-$4,100)
Cash Flow to Creditors = $18,200

Answer of Part d:

EBIT = Sales – Cost – Other Expenses – Depreciation Expense
EBIT = $242,000 - $153,000 - $7,900 - $17,700
EBIT = $63,400

Operating Cash Flow = EBIT – Taxes + Depreciation
Operating Cash Flow = $63,400 - $17,255 + $17,700
Operating Cash Flow = $63,845

Net Capital Spending = Increase in Net Fixed Assets + Depreciation
Net Capital Spending = $22,000 + $17,700
Net Capital Spending = $39,700

Cash flow to Stockholders = Dividends – Net New Equity
Cash flow to Stockholders = $11,000 - $5,600
Cash flow to Stockholders = $5,400

Cash flow from Assets = Cash flow to Creditors + Cash Flow to Stockholders
Cash Flow from Assets = $18,200 + $5,400
Cash Flow from Assets = $23,600

Addition to Net Working Capital = Operating Cash Flow – Net Capital Spending – Cash flow from Assets
Addition to Net Working Capital = $63,845 - $39,700 - $23,600
Addition to Net Working Capital = $545