Answer:
Firm's 2019 operating cash flow, or OCF
Cash Flow to Creditors
Cash Flow to Creditors = Interest Expenses Paid – Net Increase in Long term debt
= Interest Expenses Paid – [Long term debt at the end – Long term Debt at the Beginning]
= $165,000 – [$5,250,000 - $5,000,000]
= $165,000 - $250,000
= -$85,000
Cash Flow to Stockholders
Cash Flow to Stockholders = Dividend Paid – Net New Equity
= Dividend Paid – [(Common stock at the end + Additional paid-in surplus account at the end) - (Common stock at the beginning + Additional paid-in surplus account at the beginning)
= $410,000 – [($550,000 + $4,800,000) – ($510,000 + $4,6000,000)]
= $410,000 – [$5,350,000 - $5,110,000]
= $410,000 - $240,000
= $170,000
Cash Flow from assets
Cash Flow from assets = Cash Flow to Creditors + Cash Flow to Stockholders
= -$85,000 + $170,000
= $85,000
Operating Cash Flow
Operating Cash Flow using the Cash Flow from assets Equation
We know, Cash flow from assets = Operating Cash flows – Change in Net Working capital – Net Capital Spending
$85,000 = Operating cash flow – (-$69,000) - $1,370,000
Operating cash flow = $85,000 - $69,000 + $13,70,000
Operating cash flow = $1,386,000
“Therefore, the firm's 2019 operating cash flow, or OCF will be $1,386,000”
