Question

Stackhouse Industries had the following operating results for 2020: sales = $54,510; cost of goods sold = $37,430; depreciation expense = $5,830; interest expense = $1,325; dividends paid = $2,820. At the beginning of the year, net fixed assets were $33,200, current assets were $8,300, and current liabilities were $5,553. At the end of the year, net fixed assets were $42,820, current assets were $9,395, and current liabilities were $5,870. The tax rate was 24 percent.

a.	What was net income for 2020? (Do not round intermediate calculations.)
b.	What was the operating cash flow for 2020? (Do not round intermediate calculations.)
c.	What was the cash flow from assets for 2020? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations.)
d-1.	If no new debt was issued during the year, what was the cash flow to creditors? (Do not round intermediate calculations.)
d-2.	If no new debt was issued during the year, what was the cash flow to stockholders? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations.)

Answer 1

Answer a.

	Sales	54,510
Less	COGS	37,430
Less:	Depreciation	5,830
	EBIT	11,250
Less	Interest	1,325
	EBT	9,925
Less	Tax (24%)	2,382
	Net Income	7,543

Answer b.

Operating Cash Flow = EBIT + Depreciation - Taxes
Operating Cash Flow = $11,250 + $5,830 - $2,382
Operating Cash Flow = $14,698

Answer c.

Change in Net Working Capital = Ending Net Working Capital - Beginning 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 = ($9,395 - $5,870) - ($8,300 - $5,553)
Change in Net Working Capital = $778

Net Capital Spending = Ending Net Fixed Assets + Depreciation - Beginning Net Fixed Assets
Net Capital Spending = $42,820 + $5,830 - $33,200
Net Capital Spending = $15,450

Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Change in Net Working Capital
Cash Flow from Assets = $14,698 - $15,450 - $778
Cash Flow from Assets = -$1,530

Answer d-1.

Cash Flow to Creditors = Interest Paid - Net New Long-term Debt
Cash Flow to Creditors = $1,325 - $0
Cash Flow to Creditors = $1,325

Answer d-2.

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders
-$1,530 = $1,325 + Cash Flow to Stockholders
Cash Flow to Stockholders = -$2,855