During the year, Belyk Paving Co. had sales of $2,395,000. Cost of goods sold, administrative and...

During the year, Belyk Paving Co. had sales of $2,395,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,325,000, $615,000, and $444,000, respectively. In addition, the company had an interest expense of $269,000 and a tax rate of 23 percent. The company paid out $394,000 in cash dividends. Assume that net capital spending was zero, no new investments were made in net working capital, and no new stock was issued during the year. (Ignore any tax loss or carryforward provision and assume interest expense is fully deductible.)

Calculate the firm's net new long-term debt added during the year. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

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Expert Solution

Answer : Calculation of New Long Term Debt Added

For this purpose we first need to calculate Operating Cash Flow

Operating Cashflow = EBIT + Depreciation

Below is the table showing calculation of Net Income

	Amount
Sales	2395000
Less :Cost of Goods Sold	1325000
Gross Profit	1070000
Selling and Administration	615000
Depreciation Expense	444000
Operating Income / EBIT	11000
Interest Expenses	269000
Earning Before Tax (EBT)	-258000
Income Tax (23%)	0
Net Income	-258000

Operating Cashflow = EBIT + Depreciation

= 11000 + 444000

= 455,000

Cash Flow From Assets = Operating CashFlow - Change in Net Working Capital - Net Capital Spending

= 455,000 - 0 - 0

= $455,000.

Cash Flow To Shareholders = Dividends - New Equity Issued

= 394,000 - 0

= 394000

Cash Flow to Creditors = Cash Flow to Assets - Cash Flow to Shareholders

=455,000 - 394,000

= $61,000

Firm's net new long-term debt added during the year = Interest - Cash Flow to Creditors

= 269,000 - 61000

= $208,000

jeff jeffy answered 1 year ago

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