Answer:
OCF = -$1,670,000
Explanation:
To calculate this, the following are first calculated:
Cash flow to creditors = Interest expense - (Long-term debt in 2009 - Long-term debt in 2008) = $230,000 – (3,500,000 – 2,900,000) = -$370,000
Cash flow to stockholders = Dividends paid – ((Common stock in 2009 + Additional paid-in surplus in 2009) - (Common stock in 2008 + Additional paid-in surplus in 2008)) = $550,000 – (($985,000 + $8,250,000) – ($770,000 + $6,000,000)) = -$1,915,000
Cash flow from assets = Cash flow to creditors + Cash flow to stockholders = -$370,000 - $1,915,000 = $2,285,000
The the firm's 2009 operating cash flow, or OCF can now be calculated as follows:
Cash flow from assets = OCF - Net working capital investment - Net capital spending
-$2,285,000 = OCF - (-$165,000) - $780,000
-$2,285,000 = OCF + $165,000 - $780,000
OCF = -$2,285,000 - $165,000 + $780,000 = -$1,670,000
