Question

11. Volbeat Corp. shows the following information on its 2015 income statement: sales = $242,000; costs = $153,000; other expenses = $7,900; depreciation expense = $17,700; interest expense = $14,100; taxes = $17,255; dividends = $11,000. In addition, you’re told that the firm issued $5,600 in new equity during 2015 and redeemed $4,100 in outstanding long-term debt.

a. What is the 2015 operating cash flow?

b. What is the 2015 cash flow to creditors?

c. What is the 2015 cash flow to stockholders?

d. If net fixed assets increased by $22,000 during the year, what was the addition to NWC (change in NWC)?

Answer 1

(a) Operating cash flow = Total Revenue - Operating expenses

Here, in this question, operating expenses do not include interest expense, taxes and dividends because these expenses are not the regular operating expenses of the company.

Operating cash flow = Sales - Costs - Other expenses - Depreciation expense

Operating cash flow = $242000 - $153000 - $7900 - $17700

Operating cash flow = $63400

(b) Assuming that the creditors were from the outstanding long term debt, $4100 redemption is made during the year, Which means creditors were paid for $4100.

(c) Dividends paid during the year constitutes the cash flow to stockholders. An amount of $11000 were paid as dividend, which is the cash flow to stockholders.

(d) If net fixed assets increased by $22000, then either cash has been paid (reduction of current asset) for them or a liability created (addition of current liability). In both the cases, net working capital (NWC), which is current assets minus current liabilities, will be reduced by $22000.