Question

Precision Manufacturing had the following operating results for 2014: sales = $38,900; cost of goods sold = $24,600; depreciation expense = $1,700; interest expense = $1,400; dividends paid = $1,000. At the beginning of the year, net fixed assets were $14,300, current assets were $8,700, and current liabilities were $6,600. At the end of the year, net fixed assets were $13,900, current assets were $9,200, and current liabilities were $7,400. The tax rate for 2014 was 34 percent. What is the cash flow from assets for 2014?

Answer 1

Answer:

$4,284

Explanation:

The Computation of the cash flow from assets for the year 2014 is shown below

= Operating cash flow - net capital spending - changes in working capital

where,

Operating cash flow is

= EBIT + depreciation - taxes

The EBIT could come from

= Sales - cost of goods sold - depreciation expense - interest expense - tax expense

= $38,900 - $24,600 - $1,700 - $1,400 - $34% of $11,200

= $7,392

Now operating cash flow is

= $7,392 +  $1,700 - $3,808

= $5,284

net capital spending = ending fixed assets - beginning fixed assets + depreciation  

= $13,900 - $14,300 + $1,700

= $1,300

Changes in working capital = (ending balance of current assets - ending balance of current liabilities) - (beginning balance of current assets - beginning balance of current liabilities)

= ($9,200 - $7,400) - ($8,700 - $6,600)

= $1,800 - $2,100

= -$300

Now the cash flow from assets is

= $5,284 - $1,300 -(-$300)

= $4,284