Question

You have just been hired as a financial analyst for Barrington Industries. Unfortunately, company headquarters (where all of the firm's records are kept) has been destroyed by fire. So, your first job will be to recreate the firm's cash flow statement for the year just ended. The firm had $100,000 in the bank at the end of the prior year, and its working capital accounts except cash remained constant during the year. It earned $5 million in net income during the year but paid $750,000 in dividends to common shareholders. Throughout the year, the firm purchased $5.4 million of machinery that was needed for a new project. You have just spoken to the firm's accountants and learned that annual depreciation expense for the year is $450,000; however, the purchase price for the machinery represents additions to property, plant, and equipment before depreciation. Finally, you have determined that the only financing done by the firm was to issue long-term debt of $1 million at a 5% interest rate. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.
What was the firm's end-of-year cash balance? Recreate the firm's cash flow statement to arrive at your answer. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar, if necessary.

Answer 1

Answer:

$400,000

Explanation:

Given the following :

Beginning Cash balance = $100,000

Net income during the year = $5,000,000

Dividend to common shareholders = $750,000

Purchase of machinery = $5,400,000

Depreciation expense = $450,000

Long term debt = $1,000,000

Rate = 5%

STATEMENT OF CASH FLOW:

Cashflow from operating activities :

Net income ___________5,000,000

Add: Depreciation exp. ___450,000

Net cash: ____________________5,450,000

Cashflow from. Investing Activities :

Purchase of machinery __(5,400,000)

Net cash: ____________________(5,400,000)

Cashflow from financing activities:

Payment of Dividend __(750,000)

Long term debt ______1,000,000

Net cash from financing __________250,000

Net increase in cash: ____________300,000

Beginning cash balance __________100,000

Year end Cash balance __________ 400,000