Question

Use the following information for Taco Swell, Inc., (assume the tax rate is 21 percent): 2017 2018 Sales $ 16,549 $ 18,498 Depreciation 2,376 2,484 Cost of goods sold 5,690 6,731 Other expenses 1,353 1,178 Interest 1,110 1,325 Cash 8,676 9,247 Accounts receivable 11,488 13,482 Short-term notes payable 1,674 1,641 Long-term debt 29,060 35,229 Net fixed assets 72,770 77,610 Accounts payable 6,269 6,640 Inventory 20,424 21,862 Dividends 1,979 2,314 For 2018, calculate the cash flow from assets, cash flow to creditors, and cash flow to stockholders. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

Answer 1

Answer:

Cash flow from assets = -$1,824

Cash flow to creditors = -$4,844

Cash flow to stockholders = $3,020

Explanation:

Note: The data in this question are merged together. They are therefore sorted before answering the question as follows:

                                                   2017                  2018

Sales                                        $16,549            $18,498

Depreciation                               2,376                2,484

Cost of goods sold                    5,690                 6,731

Other expenses                           1,353                 1,178

Interest                                          1,110                 1,325

Cash                                             8,676               9,247

Accounts receivable                   11,488              13,482

Short-term notes payable            1,674                1,641

Long-term debt                          29,060            35,229

Net fixed assets                         72,770             77,610

Accounts payable                        6,269              6,640

Inventory                                    20,424              21,862

Dividends                                      1,979               2,314

Explanation of the answer is now given as follows:

For 2018 as required, we have the following:

EBIT = Sales - Cost of goods sold - Depreciation - Other expenses = $18,498 - $6,731 - $2,484 - $1,178 = $8,105

Taxes = (EBIT -  Interest) * Tax rate = ($8,105 - 1,325) * 21% = $1,423.80

Operating Cash Flows = EBIT - Taxes + Depreciation = $8,105 - $1,423.80 + $2,484 = $9,165.20

Current assets in 2018 =  Cash in 2018 + Accounts receivable in 2018 + Inventory in 2018 = $9,247 + $13,482 + $21,862 = $44,591

Current liabilities in 2018 = Short-term notes payable in 2018 + Accounts payable in 2018 = $1,641 + $6,640 =$8,281

Current assets in 2017 = Cash in 2017 + Accounts receivable in 2017 + Inventory in 2017 = $8,676 + $11,488 + $20,424 = $40,588

Current liabilities in 2017 = Short-term notes payable in 2017 + Accounts payable in 2017 = $1,674 + $6,269 =$7,943

Increase in net working capital = Net working capital in 2018 - Net working capital in 2017 = (Current assets in 2018 - Current liabilities in 2018) - (Current assets in 2017 - Current liabilities in 2017) = ($44,591 - $8,281) - ($40,588 - $7,943) = $3,665

Net capital spending = Net Fixed Assets in 2018 + Depreciation in 2018 - Net Fixed Assets in 2017 = $77,610 + $2,484 - $72,770 = $7,324

Cash flow from assets = Operating Cash Flows - Increase in net working capital - Net capital spending = $9,165.20 - $3,665 - $7,324 = -$1,823.80 =  -$1,824

Net new long-term debt = Long-term Debt in 2018 - Long-term Debt in 2017 = $35,229 - $29,060 = $6,169

Cash flow to creditors = Interest Expense - Net New Long-term Debt = $1,325 - $6,169 = -$4,844

Cash flow to stockholders = Cash Flow from Assets - Cash Flow to Creditors = -$1,823.80 - (-$4,844) = $3,020.20 = $3,020