Question

A firm has earnings before interest and taxes of $27,130,net income of $16,220, and taxes of...

A firm has earnings before interest and taxes of $27,130,net income of $16,220, and taxes of $5,450 for the year. While the firm paid out $31,600 to pay off existing debt it then later borrowed $42,000. What is the amount of the cash flow to creditors?

-$14,040

-$4,660

$4,660

$0

$14,040

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Homework Answers

Answer #1

The cash flow to creditor means all payment made to creditors in form of interest payment or principal payment.

Cash flow to creditors = Interest paid - Ending long term debt + Beginning long term Debt

where,

Interest Paid- This is the amount paid as interest on the total liabilities during an accounting period.

Ending long term debt- End value of the long term debt in an accounting period.

Beginning long term debt- The beginning value of a long term debt.

Here,

Ending long term debt= $42,000

Beginning long term debt= $31,600

We have to calculate the interest paid.

EBIT - Interest - taxes = Net income

$27,130 - $Interest - $5,450 = $16,220

$21,680 - Interest = $16,220

Interest = $21,680 - $16,220 = $5,460

Cash flow to creditors = 31,600 + 5,460 - 42,000 = -$ 4,940

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