Question

Graffiti Advertising, Inc., reported the following financial statements for the last two years.

2019 Income Statement
Sales	$	573,200
Costs of goods sold		273,945
Selling & administrative		124,717
Depreciation		54,560
EBIT	$	119,978
Interest		19,648
EBT	$	100,330
Taxes		40,132
Net income	$	60,198
Dividends	$	11,200
Addition to retained earnings	$	48,998

GRAFFITI ADVERTISING, INC. Balance Sheet as of December 31, 2018
Cash	$	13,480	Accounts payable	$	9,488
Accounts receivable		18,978	Notes payable		14,492
Inventory		13,810
			Current liabilities	$	23,980
Current assets	$	46,268	Long-term debt	$	135,520
Net fixed assets	$	344,906	Owners' equity	$	231,674
Total assets	$	391,174	Total liabilities and owners’ equity	$	391,174

GRAFFITI ADVERTISING, INC. Balance Sheet as of December 31, 2019
Cash	$	14,466	Accounts payable	$	10,528
Accounts receivable		21,083	Notes payable		16,482
Inventory		22,770
			Current liabilities	$	27,010
Current assets	$	58,319	Long-term debt	$	153,600
Net fixed assets	$	406,295	Owners' equity	$	284,004
Total assets	$	464,614	Total liabilities and owners’ equity	$	464,614

a.	Calculate the operating cash flow. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
b.	Calculate the change in net working capital. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
c.	Calculate the net capital spending. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
d.	Calculate the cash flow from assets. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
e.	Calculate the cash flow to creditors. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
f.	Calculate the cash flow to stockholders. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

	a. Operating cash flow $134,406 b. Change in net working capital $9,021 c. Net capital spending $115,949 d. Cash flow from assets $9,436 e. Cash flow to creditors f. Cash flow to stockholders

Answer 1

Answer a.

Operating Cash Flow = EBIT + Depreciation - Taxes
Operating Cash Flow = $119,978 + $54,560 - $40,132
Operating Cash Flow = $134,406

Answer b.

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 = ($58,319 - $27,010) - ($46,268 - $23,980)
Change in Net Working Capital = $9,021

Answer c.

Net Capital Spending = Ending Net Fixed Assets + Depreciation - Beginning Net Fixed Assets
Net Capital Spending = $406,295 + $54,560 - $344,906
Net Capital Spending = $115,949

Answer d.

Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Change in Net Working Capital
Cash Flow from Assets = $134,406 - $115,949 - $9,021
Cash Flow from Assets = $9,436

Answer e.

Net New Long-term Debt = Ending Long-term Debt - Beginning Long-term Debt
Net New Long-term Debt = $153,600 - $135,520
Net New Long-term Debt = $18,080

Cash Flow to Creditors = Interest Paid - Net New Long-term Debt
Cash Flow to Creditors = $19,648 - $18,080
Cash Flow to Creditors = $1,568

Answer f.

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders
$9,436 = $1,568 + Cash Flow to Stockholders
Cash Flow to Stockholders = $7,868