Question

Square Hammer Corp. shows the following information on its 2018 income statement: Sales = $206,000; Costs = $123,000; Other expenses = $7,900; Depreciation expense = $14,000; Interest expense = $13,100; Taxes = $16,800; Dividends = $10,000. In addition, you’re told that the firm issued $4,600 in new equity during 2018 and redeemed $3,100 in outstanding long-term debt. a. What is the 2018 operating cash flow? (Do not round intermediate calculations.) b. What is the 2018 cash flow to creditors? (Do not round intermediate calculations.) c. What is the 2018 cash flow to stockholders? (Do not round intermediate calculations.) d. If net fixed assets increased by $22,000 during the

Answer 1

Answer:

a. What is the 2018 operating cash flow?

$31,200 + $14,000 = $45,200

b. What is the 2018 cash flow to creditors?

-$13,100 - $3,100 = -$16,200 (it is negative since interests and principal were paid to creditors)

c. What is the 2018 cash flow to stockholders?

-$10,000 + $4,600 = -$5,400 (it is negative since more dividends were paid to stockholders than new equity raised)

d. If net fixed assets increased by $22,000 during the year, what was the addition to NWC?

net capital spending = depreciation + increase in fixed assets = $14,000 + $22,000 = $36,000

cash flow from assets = cash flow to creditors + cash flow to stockholders = -$16,200 - $5,400 = -$21,600

change in net working capital = operating cash flow + cash flow from assets  - net capital spending = $45,200 - $21,600 - $36,000 = $12,400

Explanation:

net income = $206,000 - $123,000 - $7,900 - $14,000 - $13,100 - $16,800 = $31,200