Thomson Corporation had the following operating results for 2019 (in 000’s): sales of $30,600; cost of goods sold of $21,800; depreciation expense of $4,200; interest expense of $1,040; dividends paid of $1,000

Thomson Corporation had the following operating results for 2019 (in 000’s): sales of $30,600; cost of goods sold of $21,800; depreciation expense of $4,200; interest expense of $1,040; dividends paid of $1,000. At the beginning of the year, net fixed assets were $23,600, current assets were $6,800, and current liabilities were $3,800. At the end of the year, net fixed assets were $25,800, current assets were $7,900, and current liabilities were $3,900. Total taxes are $1,500 ($1,424 paid, and $76 deferred).

What is the net income for 2019?
What is the operating cash flow for 2019?
What is the cash flow from assets for 2019? Is this possible? Explain
If no new debt was issued during the year, what is the cash flow to creditors? What is the cash flow to shareholders? Explain and interpret the positive and negative signs of your answers in (a) through (d)

Solutions

Expert Solution

(a)

	Amount $
sales	30,600
Less-Cost of goods sold	21,800
Less-depreciation expenses	4,200

EBIT	4,600
Less-interest expense	1,040

EBT or earning before tax	3,560
Less-taxes	1,500

Net income for 2019	2,060

Note-it is assumed that the current liability at the end includes the non paid amount of tax $76

(b)

Operating cash flow =EBIT-Taxes paid + Depreciation

=> Operating cash flow = $4600-$1424+$4200 = $7376

(c)

	Beginnig of the year	End of the year
net fixed assets	23,600	25800
current assets	6,800	7900
current liabilities	3,800	3,900

Closing net assets = Opening net assets+Capital expenditure-Depreciation

Closing Net assets	25800
Add-depreciation	4,200
Less-Opening net assets	23,600

Net capital expenditure during the year	6,400

Net working capital = Current assets-Current liability

opening working capital = 6,800-3,800 =$3000

Closing working capital = 7900-3,900 =$4000

change in net working capital = $4000-$3000 =$1000.

Cash flow from assets= Operating cashflow- capital expenditure-change in working capital

=>Cash flow from assets=$7376-$6,400-$1000.= -$24.

Yes it is possible to have negative cash flow from the assets, when the firm invested heavily in the Net fixed asset and working capital

(d)

if no debt has been issued then the cash flow to the creditors is the Interest expenses

=>Cash flow to the creditor = $1,040 [ interest expenses]

cashflow from assets = Cash flow to Creditor+ cash flow to share holder

=>-$24 = $1,040+cash flow to sharholder

=>cash flow to share holder = -$1064

jeff jeffy answered 1 year ago

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