Question

Weiland Co. shows the following information on its 2016 income statement: sales = $158,500; costs = $80,800; other expenses = $4,100; depreciation expense = $9,800; interest expense = $7,300; taxes = $19,775; dividends = $7,750. In addition, you're told that the firm issued $3,700 in new equity during 2016 and redeemed $6,100 in outstanding long-term debt.

a. What is the 2016 operating cash flow? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

b. What is the 2016 cash flow to creditors? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

c. What is the 2016 cash flow to stockholders? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

d. If net fixed assets increased by $20,800 during the year, what was the addition to NWC? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Answer 1

(a)-2016 operating cash flow

Operating Cash Flow = Sales - Production Cost – Other Expenses – Income Tax Expenses

= $158,500 - $80,800 - $4,100 - $19,775

= $53,825

(b)-2016 cash flow to creditors

Cash Flow to Creditors = Interest Expenses – Redemption of long-term debt

= $7,300 – (-$6,100)

= $7,300 + $6,100

= $13,400

(c)-2016 cash flow to stockholders

Cash flow to stockholders = Dividend Paid - Equity shares issued

= $7,750 - $3,700

= $4,050

(d)-Addition to NWC

Net Capital Spending

Net Capital Spending = Increase in FA + Depreciation Expenses

= $20,800 + $9,800

= $30,600

Cash Flow from Assets

Cash Flow from Assets = Cash flow to creditors + cash flow to stockholders

= $13,400 + $4,050

= $17,450

Cash Flow from Assets = Operating cash flow - Net Capital Spending - Addition to Net Working Capital

Therefore, the Addition to Net Working Capital = Operating Cash Flow – Net Capital Spending – Cash flow from assets

= $53,825 - $30,600 - $17,450

= $5,775