For Year 2016, Precision Masters had sales of $42,900, cost of goods sold of $26,800, depreciation...

For Year 2016, Precision Masters had sales of $42,900, cost of goods sold of $26,800, depreciation expense of $1,900, interest expense of $1,300, and dividends paid of $1,000. At the beginning of the year, net fixed assets were $14,300, current assets were $8,700, and current liabilities were $6,600. At the end of the year, net fixed assets were $13,900, current assets were $9,200, and current liabilities were $7,400. The tax rate was 34 percent. What is the cash flow from assets for 2016?

Expert Solution

EBIT = Sales - Costs of Goods Sold - Depreciation
EBIT = $42,900 - $26,800 - $1,900
EBIT = $14,200

EBT = EBIT - Interest Paid
EBT = $14,200 - $1,300
EBT = $12,900

Taxes = EBT * Tax Rate
Taxes = $12,900 * 34%
Taxes = $4,386

Operating Cash Flow = EBIT + Depreciation - Taxes
Operating Cash Flow = $14,200 + $1,900 - $4,386
Operating Cash Flow = $11,714

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 = ($9,200 - $7,400) - ($8,700 - $6,600)
Change in Net Working Capital = -$300

Net Capital Spending = Ending Net Fixed Assets + Depreciation - Beginning Net Fixed Assets
Net Capital Spending = $13,900 + $1,900 - $14,300
Net Capital Spending = $1,500

Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Change in Net Working Capital
Cash Flow from Assets = $11,714 - $1,500 - (-$300)
Cash Flow from Assets = $10,514

jeff jeffy answered 1 month ago

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