Question

You have just been hired as a financial analyst for Barrington Industries. Unfortunately, company headquarters (where all of the firm's records are kept) has been destroyed by fire. So, your first job will be to recreate the firm's cash flow statement for the year just ended. The firm had $100,000 in the bank at the end of the prior year, and its working capital accounts except cash remained constant during the year. It earned $5 million in net income during the year but paid $800,000 in dividends to common shareholders. Throughout the year, the firm purchased $5.6 million of property, plant, and equipment — the majority having a useful life of more than 20 years and falling under the alternative depreciation system. You have just spoken to the firm's accountants and learned that annual depreciation expense for the year is $450,000. The purchase price for the represents additions 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 7% interest rate. What was the firm's end-of-year cash balance? Recreate the firm's cash flow statement to arrive at your answer. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar, if necessary.

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Answer 1

Cash flow from Operating Activities
Net Income		$   5,000,000.00
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation	$ 450,000.00
Changes in Working Capital	$                      -
		$ 450,000.00
Cash inflow from operating activities		$   5,450,000.00
Cash flow from Investing Activities
Purchase of property, plant and Equipment	$ -5,600,000.00
Cash outflow from Investing Activities		$ -5,600,000.00
Cash flow from Financing Activities
Issue of Lonterm debt	$ 1,000,000.00
Payment of Cash Dividend	$ -800,000.00
Cash inflow from Financing Activities		$ 200,000.00
Net Change in Cash and Cash Equivalents		$        50,000.00
Beginning balance of Cash and Cash Equivalents		$ 100,000.00
Ending balance of Cash and Cash Equivalents		$ 150,000.00