Question

Weiland Co. shows the following information on its 2019 income statement: sales = $160,000; costs = $80,500; other expenses = $3,800; depreciation expense = $9,500; interest expense = $7,000; taxes = $20,720; dividends = $7,900. In addition, you're told that the firm issued $4,000 in new equity during 2019 and redeemed $6,700 in outstanding long-term debt.

a.	What is the 2019 operating cash flow?
b.	What is the 2019 cash flow to creditors?
c.	What is the 2019 cash flow to stockholders?
d.	If net fixed assets increased by $20,950 during the year, what was the addition to NWC?

(For all requirements, do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Answer 1

2019 operating cash flow

EBIT = Sales – Costs – Other expenses – Depreciation

= $160,000 - $80,500 - $3,800 - $9,500

= $66,200

2019 operating cash flow = EBIT + Depreciation – Taxes

= $66,200 + $9,500 - $20,720

= $54,980

2019 cash flow to creditors

2019 cash flow to creditors = Interest expenses + Debts redeemed

= $7,000 + $6,700

= $13,700

2019 cash flow to stockholders

2019 cash flow to stockholders = Dividend paid – New equity issued

= $7,900 - $4,000

= $3,900

Addition to NWC

Net capital spending = Increase in fixed assets + Depreciation

= $20,950 + $9,500

= $30,450

Cash flow from assets = Cash flow to creditors + Cash flow to stockholders

= $13,700 + $3,900

= $17,600

Cash flow from assets = Operating cash flow - Net capital spending – Addition to NWC

$17,600 = $54,980 - $30,450 - Addition to NWC

$17,600 = $24,530 - Addition to NWC

Addition to NWC = $24,530 - $17,600

Addition to NWC = $6,930

The Addition to net working capital will be $6,930