Question

In 2017, Lysander Shipping had cash flow from assets of $1.65 million, paid $450,000 in interest...

In 2017, Lysander Shipping had cash flow from assets of $1.65 million, paid $450,000 in interest expense and $375,000 in dividends. The company most likely:

A.

paid down debt of $825,000.
B.

kept debt at current levels.
C.

issued debt of $825,000.
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Answer #1

Answer is “paid down debt of $825,000”

Cash Flow from Assets = $1,650,000

Assuming no change in equity

Cash Flow to Stockholders = Dividends - Net New Equity
Cash Flow to Stockholders = $375,000 - $0
Cash Flow to Stockholders = $375,000

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders
$1,650,000 = Cash Flow to Creditors + $375,000
Cash Flow to Creditors = $1,275,000

Cash Flow to Creditors = Interest Expense - Net New Debt
$1,275,000 = $450,000 - Net New Debt
Net New Debt = -$825,000

Therefore, the company is most likely to paid down debt of $825,000

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