Question

In: Finance

Sales                                         &nbs

Sales                                           153,000

Costs                                            81,900

Other Expenses                        5,200

Depreciation                           10,900

Interest Expense                      8,400

Taxes                                            16,330

Dividends                                    7,200

New Equity                                 2,600

Redeemed LT Debt                 3,900

What is the operating cash flow?

What is the cash flow to creditors?

What is the cash flow to stockholders?

If net fixed assets increased by $20,250 during the year, what was the addition to NWC?

Solutions

Expert Solution

a. The operating cash flow is computed by using the below formula:

= EBIT - taxes + Depreciation
The Income Statement is presented as follows:

EBIT is computed as follows:

= Sales - Costs - Other Expenses - Depreciation

= $153,000 - $ 81,900 - $ 5,200 - $ 10,900

= $ 55,000
So the operating cash flow will be

= $ 55,000 - $ 16,330 + $ 10,900

= $ 49,570

b. The cash flow to creditors is computed as shown below:

Cash flow to creditors = Interest paid – Net new borrowing
Cash flow to creditors = $ 8,400 – (–$ 3,900)
Cash flow to creditors = $ 12,300

c. Cash flow to stockholders is computed as follows:

Cash flow to stockholders = Dividends paid – Net new equity
Cash flow to stockholders = $ 7,200 – $ 2,600
Cash flow to stockholders = $ 4,600

d. The addition to NWC is computed as follows:

Cash flow from assets is computed by using the below formula:

= Cash flow to creditors + Cash flow to stockholders
= $ 12,300 + $ 4,600
Cash flow from assets = $ 16,900

Net capital spending is computed by using the below formula:

= Depreciation + Increase in fixed assets
= $ 10,900 + $ 20,250
= $ 31,150

We will use the below mentioned equation in order to find the change in net working capital

Cash flow from assets = OCF – Change in NWC – Net capital spending
$ 16,900 = $ 49,570 – Change in NWC – $ 31,150
Change in NWC = $ 1,520

Feel free to ask in case of any query relating to this question

jeff jeffy answered 1 week ago
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