In: Finance
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.)
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