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Question: Here are some data on FinHere are some data on Fincorp, Inc. Fincorp follows IFRS. The statement of financial position items correspond to values at year-end of 2014 and 2015, while the statement of comprehensive income items correspond to revenues or expenses during the year ending in either 2014 or 2015. All values are in thousands of dollars. 2015 2014 Trade payables $350 $300 Revenue 4,100 4,000 Depreciation (320) (300) Short-term investments 550 430 Inventories 350 300 Long-term debt 2,400 3,000 Provisions 770 680 Administrative expenses (550) (500) Federal and provincial taxesª (420) (400) Trade receivables 450 400 Finance incomeb 120 50 Finance expense (150) (150) Property, plant, and equipmentc 5,800 5,000 Dividends paid (410) (410) Cost of goods sold (1,700) (1,600) Cash and cash equivalents 300 800 ª Taxes are paid in their entirety in the year in which the tax obligation is incurred.

b Finance income is gain in value of short-term investments.

? Property, plant, and equipment are net of accumulated depreciation and impairment losses since the assets were installed.

a. Using the data for Fincorp, determine the cash flow from assets. Treat interest as a financing flow. Cash flow from assets

Using the data for Fincorp, determine the cash flow to bondholders. Treat interest as a financing flow. Cash flow to bondholders

Using the data for Fincorp, determine the cash flow to shareholders. Treat interest as a financing flow.

Cash flow flow to shareholders

Using the data for Fincorp, determine financing flows. Treat interest as a financing flow.

b. Assuming that Fincorp's tax rate is 28%, calculate its after-tax finance expense. After-tax interest expense

c. Using the after-tax finance expense, recalculate cash flow from assets and financing flow. Cash flow from assets

Using the after-tax finance expense, recalculate financing flow.

Answer 1

(a) Cash Flow from Assets

(i) Fixed Assets A/c at the end of 2015

Particulars	Amount	Particuluars	Amount
To Opening bal b/d To Purchases(b/f)	5000 1120	By Depreciation By Closing bal c/d	320 5800

Therefore cash flow from assets = purchase of fixed assets during the year = -1120

(ii) Cash flow to bond holders

Interest Income (Finance Expense) 150

Redemption of Long Term Debt 600 (3000-2400)

_750__________

(iii) Cash flow to Shareholders

Dividend received 410

(iv) Financing Flows

Repayment of Long Term Debt (600)

Dividend Paid (410)

Finance Expense (150)

Finance Income 120

(1040)   

(b) After Tax Finance Expense:

Finance Expense for the year 2015 = 150

Tax Rate = 28%

After Tax Finance expense = 150(1-0.28)

= 108   

(c) Recalculation of Cash flow from assets and Financing flows

There will be no change in the value of Cash flow from assets due to after tax finance expenses

Thus cash flow from assets remains -1120

Financing Cash Flows:

Repayment of Long Term Debt (600)

Dividend Paid (410)

Finance Expense (108)

Finance Income    120

   (998)   

*Finance expense is treated as Interest expense on Long Term Debt.