Question

Sales=35,420; Cost of good sold=25,260; Depreciation expense=6,000; Interest expense=2,715;Dividends paid=2,000. At the beginning of the year, net fixed assets were 19,950, current assets were 7,065, and current liabilities were 3,938. At the end of the year, net fixed assets were 24,500, current assets were 8,690, and current liabilities were 4,680. The tax rate was 22 percent.

1. What was the operating cash flow?

2. What was the net capital spending?

3. What was the cash flow from assets?

4. If no new debt was issued during the year, what was the cash flow to creditors?

5. If no new debt was issued during the year, what was the cash flow to stockholders?

Answer 1

1. Operating cash flow = Net income + depreciation + interest expense

Net income = (Sales - Cost of goods sold - Depreciation expense - Interest expense)*(1-tax rate)

Net income = (35,420 - 25,260 - 6,000 - 2,715)*(1-0.22) = 1,445*0.78 = 893.10

Operating cash flow = 893.10 + 6,000 + 2,715 = 9,608.10

2. net capital spending = ending net fixed assets - beginning net fixed assets + Depreciation expense

net capital spending = 24,500 - 19,950 + 6,000 = 10,550

3. Cash flow from assets = Operating cash flow - net capital spending - change in net working capital

change in net working capital = (ending current assets - ending current liabilities) - (beginning current assets - beginning current liabilities)

change in net working capital = (8,690 - 4,680) - (7,065 - 3,938) = 4,010 - 3,127 = 883

Cash flow from assets = 9,608.10 - 10,550 - 883 = -1,824.90

4. cash flow to creditors = Interest expense - new debt issued = 2,715 - 0 = 2,715

no new debt was issued during the year.