Question

During 2018, Raines Umbrella Corp. had sales of $750,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $540,000, $85,000, and $190,000, respectively. In addition, the company had an interest expense of $65,000 and a tax rate of 21 percent. (Ignore any tax loss carryforward provisions and assume interest expense is fully deductible.) Suppose the company paid out $68,000 in cash dividends. If net capital spending and net working capital was zero, and if no new stock was issued during the year, what is the net new long-term debt

Answer 1

Answer:

New Long term debt = $8000

Explanation:

The computation of the net new long term debt is given below:

Sales $750000

Less: Expenses:  

COGS -$540,000

Selling expenses -$85,000

Depreciation -$190,000

Interest- $65,000

Total Expenses -$880,000

Net Loss -$130,000

Add: Non- cash expense ie. Depreciation +$190,000

Net Cash flow $60,000

Less: Cash Dividend declared -$68,000

New Long term debt = $8000