Question

In: Finance

Prescott Football Manufacturing had the following operating results for 2019: sales = $30,174; cost of goods...

Prescott Football Manufacturing had the following operating results for 2019: sales = $30,174; cost of goods sold = $21,740; depreciation expense = $3,512; interest expense = $544; dividends paid = $849. At the beginning of the year, net fixed assets were $20,046, current assets were $3,029, and current liabilities were $3,776. At the end of the year, net fixed assets were $23,077, current assets were $4,447, and current liabilities were $3,077. The tax rate for 2019 was 21 percent.


a.	Net income
b.	Operating cash flow
c.	Cash flow from assets
d.	Cash flow to creditors
e.	Cash flow to stockholders

Expert Solution

(a).Net income = $ 3,458.62

(b). Operating cash flow = $ 7,514.62

(c). Cash flow from assets = -$1,145.38 (Negative)

(d). Cash flow to creditors = $544.00

(e). Cash flow to stockholders = -$1,689.38 (Negative)

Workings

Income Statement
Sales	30,174.00
Less: Cost of goods sold	21,740.00
Less: Depreciation expenses	3,512.00
EBIT	4,922.00
Less: Interest expenses	544.00
EBT	4,378.00
Less: Tax at 21%	919.38
Net Income	3,458.62
Less: Dividend paid	849.00
Additions to retained earnings	2,609.62

Operating cash flow

Operating cash flow = EBIT + Depreciation – Taxes

= $4,922.00 + $3,512.00 - $919.38

= $7,514.62

Cash flow to creditors

Cash flow to creditors = Interest expenses – Net new borrowings

= $544.00 - $0.00

= $544.00

Cash flow to stockholders

Net new equity = Equity at the end – Equity at the beginning – Retained earnings

= [$23,077 + 4,447 – 3,077] – [$20,046 + 3,029 – 3,776] - $2,609.62

= $24,447.00 - $ 19,299.00 - $2,609.62

= $2,538.38

Therefore, the Cash flow to stockholders = Dividends paid – Net new equity

= $849.00 - $2,538.38

= -$1,689.38 (Negative)

Cash flow from assets

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

= $544.00 - $1,689.38

= -$1,145.38 (Negative)

jeff jeffy answered 1 year ago

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