Question

You are given the following information about Palmer Golf Shop, Inc.

-The 2018 balance sheet of Palmer Golf Shop, Inc., showed long-term debt of $2.5 million, and the 2019 balance sheet showed long-term debt of $2.35 million. The 2019 income statement showed an interest expense of $175,000. What was the firm’s cash flow to creditors during 2019?

-The 2018 balance sheet of Palmer Shop, Inc., showed $725,000 in the common stock account and $3.75 million in the additional paid-in surplus account. The 2019 balance sheet showed $955,000 and $3.6 million in the same two accounts, respectively. If the company paid out $635,000 in cash dividends during 2019, what was the cash flow to stockholders for the year?

-What is cash flow from assets?

-Suppose you also know that the firm’s net capital spending for 2019 was $500,000 and that the firm increased its net working capital investment by $65,000. What was the firm’s 2019 operating cash flow, or OCF?

Answer 1

Net New Long-term Debt = Long-term Debt, 2019 - Long-term Debt, 2018
Net New Long-term Debt = $2,350,000 - $2,500,000
Net New Long-term Debt = -$150,000

Cash Flow to Creditors = Interest Expense - Net New Long-term Debt
Cash Flow to Creditors = $175,000 - (-$150,000)
Cash Flow to Creditors = $325,000

Net New Equity = Common Stock, 2019 + Additional Paid-in Surplus, 2019 - Common Stock, 2018 - Additional Paid-in Surplus, 2018
Net New Equity = $955,000 + $3,600,000 - $725,000 - $3,750,000
Net New Equity = $80,000

Cash Flow to Stockholders = Dividends - Net New Equity
Cash Flow to Stockholders = $635,000 - $80,000
Cash Flow to Stockholders = $555,000

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders
Cash Flow from Assets = $325,000 + $555,000
Cash Flow from Assets = $880,000

Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Net Increase in NWC
$880,000 = Operating Cash Flow - $500,000 - $65,000
Operating Cash Flow = $1,445,000