Question

Cardinal Industries had the following operating results for 2018: Sales = $34,217; Cost of goods sold = $24,163; Depreciation expense = $5,987; Interest expense = $2,705; Dividends paid = $1,987. At the beginning of the year, net fixed assets were $19,930, current assets were $7,047, and current liabilities were $3,986. At the end of the year, net fixed assets were $24,493, current assets were $8,678, and current liabilities were $4,664. The tax rate for 2018 was 21 percent.

  

a.	What is net income for 2018? (Do not round intermediate calculations.)
b.	What is the operating cash flow for 2018? (Do not round intermediate calculations.)
c.	What is the cash flow from assets for 2018? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.)
d-1.	If no new debt was issued during the year, what is the cash flow to creditors? (Do not round intermediate calculations.)
d-2.	If no new debt was issued during the year, what is the cash flow to stockholders? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.)

  

Answer 1

Solution

Net Income;
Sales			34217
Less: Cost			24163
Less: Depreciation			5987
Less: Interest			2705
Net Income before tax			1362
Less: taxes @ 21%			286
Net income after tax			1076
Operating cash flows:
Net income after tax			1076
Add: Depreciation			5987
Add: Interest expense			2705
Operating cash flows:			9768
Capital ependiture:
Change in Balance of FA (24493-19930)				4563
Add: Depreciation				5987
Capital enpenditure n FA				10550
Increase in NWC:
Beginning NWC (7047-3986)			3061
Ending NWC (8678-4664)			4014
Increase in NWC:			953
Free cashflows= Operating cash flows-Capital expenditure in FA-Increasae in WC
Free cashflows= 9768-10550-953 = -1735
Cash to creditors
Interest paid			2705
Cash flows to creditors			2705
Free cash flows= Cashflows to stockholder + Cashflows to Creditors
Cashflows to stockholder= (-1735-2705)= -4440
Cashflows received from Stockholders = 4440