Question

The 2014 balance sheet of Jordan’s Golf Shop, Inc., showed long-term debt of $6.4 million, and the 2015 balance sheet showed long-term debt of $6.65 million. The 2015 income statement showed an interest expense of $225,000. The 2014 balance sheet showed $630,000 in the common stock account and $4.9 million in the additional paid-in surplus account. The 2015 balance sheet showed $670,000 and $5.4 million in the same two accounts, respectively. The company paid out $620,000 in cash dividends during 2015. Suppose you also know that the firm’s net capital spending for 2015 was $1,490,000, and that the firm reduced its net working capital investment by $93,000. What was the firm’s 2015 operating cash flow, or OCF? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) Operating cash flow $

Answer 1

Cash Flow to Creditors

Cash Flow to Creditors = Interest Expenses Paid – Net Increase in Long term debt

= Interest Expenses Paid – [Long term debt at the end – Long term Debt at the Beginning]

= $225,000 – [$66,50,000 - $64,00,000]

= $225,000 - $250,000

= -$25,000

Cash Flow to Stockholders

Cash Flow to Stockholders = Dividend Paid – Net New Equity

= Dividend Paid – [(Common stock at the end + Additional paid-in surplus account at the end) - (Common stock at the beginning + Additional paid-in surplus account at the beginning)

= $620,000 – [($670,000 + $54,00,000) – ($630,000 + $49,00,000)]

= $620,000 – [$60,70,000 - $55,30,000]

= $620,000 - $540,000

= $80,000

Cash Flow from assets

Cash Flow from assets = Cash Flow to Creditors + Cash Flow to Stockholders

= -$25,000 + $80,000

= $55,000

Operating Cash Flow

Operating Cash Flow using the Cash Flow from assets Equation

Cash flow from assets = Operating Cash flows – Change in Net Working capital – Net Capital Spending

$55,000 = Operating cash flow – (-$93,000) - $14,90,000

Operating cash flow = $55,000 - $93,000 + $14,90,000

Operating cash flow = $14,52,000

“Therefore, the firm's 2015 operating cash flow, or OCF would be $14,52,000”