Question

• You have just been hired as a financial analyst for a company called Basel Industries.
• Unfortunately, company headquarters (where all of the firm’s records are kept) have been destroyed by fire.
• So, your first job will be to recreate the firm’s cash flow statement for the year that has just ended.
• The firm had $100,000 in the bank at the end of the prior year.
• In addition, its net working capital accounts, except cash, remained constant during the year.  
• The company earned $5 million in net income during the year and but only paid $750,000 in dividends to common shareholders.
• Throughout the year, Basel Industries purchased $5.5 million of machinery that was needed for a new project.
• You have just been spoken to the firm’s accountants and learnt that annual depreciation expense for the year is $450,000; however, the purchase price for the machinery represents additions to property, plant and equipment before depreciation.   
• Finally, you have determined that the only financing done by the firm was to issue long-term debt of $1 million at a 6% interest rate.
• Determine the firm’s cash balance at the end of the year. Recreate the firm’s cash flow statement to arrive at your answer.

Answer 1

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