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.

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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