Answer: Even though Raines Umbrella Corp has a net loss, its operating cash flow is positive $165,000. This indicates that the company has sufficient cash balance to pay dividends of $102,000.
The net new long-term debt is $7000.
We follow these steps to arrive at the answer:
<u>Calculating Net Income:</u>
Sales 705000
less: Cost of goods sold -445000
Administrative and Selling expenses -95000
Depreciation -140000
EBIT 25000
less: Interest 70000
Net loss -45000
<u>Calculating operating Cash Flow OCF:</u>

Since Raines has a net loss, there are no taxes. So

<u>
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<u>Calculation of cash flow from assets:</u>
\mathbf{Cash Flow from assets = OCF + net change in capex spending + change in net working capital}
Since spending on net fixed assets and net working capital is zero,
<u>
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<u>Calculation of cash flow to stockholders</u>


<u>Cash flow to creditors:</u>
We determine cash flow to creditors as follows:


<u>The Cash Flow identity is given by:</u>


