Question

SOLVED

Cardinal Industries had the following operating results for 2018: Sales = $34,116; Cost of goods sold = $24,114; Depreciation expense = $5,977; Interest expense = $2,700; Dividends paid = $1,978. At the beginning of the year, net fixed assets were $19,920, current assets were $7,040, and current liabilities were $3,980. At the end of the year, net fixed assets were $24,484, current assets were $8,672, and current liabilities were $4,655. The tax rate for 2018 was 25 percent. a. What is net income for 2018? (Do not round intermediate calculations.) b. What is the operating cash flow for 2018? (Do not round intermediate calculations.) c. What is the cash flow from assets for 2018? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) d-1. If no new debt was issued during the year, what is the cash flow to creditors? (Do not round intermediate calculations.) d-2. If no new debt was issued during the year, what is the cash flow to stockholders? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.

ANSWERED -

Ebit 4025

Ebt 1325

Tax 1325*.25 331.25

a. Net inc 993.75

Ebit 1325 + depr 5977 - tax 331.25

b. 9670.75 ocf

Change nwc = End nwc (end current assets 8672 - end current liabilities 4655) - beg nwc (beg assets 7040 - beg liabilities 3980)

Change Nwc= 957

Net cap spend = end fixed asset 24484 + depr 5977 - beg fixed asset 19920

Net cap spend = 10541

Cash flow assets = ocf 9670.75 - change nwc 957 - net cap spend 10541

C. -1827.25

Cash flow cred = interest exp 2700 - 0 net new debt

D1 2700

Cash flow stockh = cash flow assets -1827.25 - cash flow cred 2700

D2 -4527.25

Answer 1

Answer a.

EBIT = Sales - Costs of Goods Sold - Depreciation
EBIT = $34,116 - $24,114 - $5,977
EBIT = $4,025

EBT = EBIT - Interest Paid
EBT = $4,025 - $2,700
EBT = $1,325

Taxes = EBT * Tax Rate
Taxes = $1,325 * 25%
Taxes = $331.25

Net Income = EBT - Taxes
Net Income = $1,325 - $331.25
Net Income = $993.75

Answer b.

Operating Cash Flow = EBIT + Depreciation - Taxes
Operating Cash Flow = $4,025 + $5,977 - $331.25
Operating Cash Flow = $9,670.75

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 = ($8,672 - $4,655) - ($7,040 - $3,980)
Change in Net Working Capital = $957

Net Capital Spending = Ending Net Fixed Assets + Depreciation - Beginning Net Fixed Assets
Net Capital Spending = $24,484 + $5,977 - $19,920
Net Capital Spending = $10,541

Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Change in Net Working Capital
Cash Flow from Assets = $9,670.75 - $10,541 - $957
Cash Flow from Assets = -$1,827.25

Answer d.

Cash Flow to Creditors = Interest Paid - Net New Long-term Debt
Cash Flow to Creditors = $2,700 - $0
Cash Flow to Creditors = $2,700

Answer e.

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders
-$1,827.25 = $2,700 + Cash Flow to Stockholders
Cash Flow to Stockholders = -$4,527.25