Question

Jetson Spacecraft Corp. shows the following information on its 2009 income statement: sales = $202,000; costs = $96,000; other expenses = $4,800; depreciation expense = $9,000; interest expense = $14,100; taxes = $23,430; dividends = $9,900. In addition, you're told that the firm issued $7,300 in new equity during 2009 and redeemed $8,900 in outstanding long-term debt.

(a)	What is the 2009 operating cash flow?

(b)	What is the 2009 cash flow to creditors?

(c)	What is the 2009 cash flow to stockholders?

(d)	If net fixed assets increased by $26,000 during the year, what was the addition to NWC?

Answer 1

Solution:

a. Operating cash flow = Sales - cost - other expenses - depreciation - taxes + depreciation

Operating cash flow= $2,02,000-$96,000 -$4800 - $9000 - $23,430 + $9000= $77,770

b. Cash flow to creditors = Interest expense - Net New borrowing

Cash flow to creditors = $14,100 - (-$8900) = $23,000

c. Cash flow to stockholders = Dividend - new equity

Cash flow to stockholders = $9900 - $ 7300= $2600

D. Addition to NWC = Operating Cash flow - cash flow from assets - net capital spending

Cash flow from assets = Cash flow to creditors + cash flow to stockholders

Cash flow from assets = $23,000 + $2600= $25,600

Addition to NWC = $77,770 - $25,600 -($26000+9000) = $17,170