Question

Schwert Corp. shows the following information on its 2017 income statement: sales = $227,000; costs = $129,000; other expenses = $7,900; depreciation expense = $14,200; interest expense = $13,700; taxes = $21,770; dividends = $10,500. In addition, you’re told that the firm issued $5,200 in new equity during 2017 and redeemed $3,700 in outstanding long-term debt.

A.) What was the 2017 operating cash flow? (Do not round intermediate calculations.)

b.) What was the 2017 cash flow to creditors? (Do not round intermediate calculations.)

c.) What was the 2017 cash flow to stockholders? (Do not round intermediate calculations.)

d.) If net fixed assets increased by $30,000 during the year, what was the addition to NWC? (Do not round intermediate calculations.)

Answer 1

A) OPERATING CASH FLOW IN 2017 IS :

let us first calculate the ent income,

sales = $2,27,000

costs = $129000

expenses = $7,900

depreciation = $14,200

EBIT = $75,900

Interest expense = $13,700

taxes = $21,770

net income = $40430

dividends = $10,500

addition to retained earnings = $29,930

OPERATING CASH FLOW = EBIT - TAXES + DEPRECIATION

=$75,900 - $21,770 + $14,200

=$68,330

B) CASH FLOW TO CREDITORS: AS THE FIRM PAID THE OUTSTANDING LONG TERM DEBT , THE CASH PAID TO CREDITORS IS $3700 + interest expenses = $3700 + $13,700 = $17,400

C) THE 2017 CASH FLOW TO STOCKHOLDERS IS = DIVIDENDS -NET EQUITY ISSUED

=$10,500 - $5,200 = $5300.

THE CASH FLOW TO STOCKHOLDERS IS THE PAYMENT OF DIVIDEND TO THEM AS WELL AS EQUITY IS ISSUED ,SO IT IS SUBTRACTED FROM THE TOTAL CASH PAID TO THEM.

D) CASH FLOW TO ASSETS = CASH FLOW TO CREDITORS + CASH FLOW TO STOCKHOLDERS

=$17,400 + $5,200 = $22,600

IT CAN ALSO BE CALCULTED AS ,

CFA (CASH FLOW TO ASSETS ) = OCF - NWC - NET CAPITAL SPENDING

NET CAPITAL SPENDING = INCREASE IN FIXED ASSETS + DEPRECIATION = $30,000 +$14,200 =

$44,200

OR, 68,330 - NWC - (44,200 ) = $22,600

= NWC = $1530.

THERFORE, THE ADDITION TO NET WORKING CAPITAL IS $1530. THE COMPANY INCREASED ITS NET WORKING CAPITRAL BY $1530.