Question

Current Accounts – 2009:

CA = $4,400; CL = $1,500

2008: CA = $3,500; CL = $1,200 •

Fixed Assets and Depreciation – 2009: NFA = $3,400; 2008: NFA = $3,100 – Depreciation Expense = $400

Long-term Debt and Equity – 2009: LTD = $4,000; Common stock = $500 – 2008: LTD = $3,950; Common stock = $400

Income Statement – EBIT = $2,000; Taxes = $300 – Interest Expense = $350

If the Cash Flow Identity holds, compute the dividends paid out by the company. PLEASE SHOW STEPS. THANK YOU

Answer 1

The Cash Flow Identity is:

CF from Assets = CF to Creditors + CF to Stockholders

OCF = EBIT + Depreciation – Taxes

= $2,000 + $400 - $300 = $2,100

CAPEX = (Δ in net Fixed Assets) + Depreciation

= [$3,400 - $3,100] + $400 = $700

ΔNWC = Ending NWC – Beginning NWC

= [$4,400 - $1,500] - [$3,500 - $1,200] = $2,900 - $2,300 = $600

CFFA = Operating Cash Flow - Capital Spending - Additions to NWC

= $2,100 - $700 - $600 = $800

CFC = Interest Expense - Ending Long-term Debt + Beginning Long-term Debt

= $350 - $4,000 + $3,950 = $300

CFS = CFFA - CFC

= $800 - $300 = $500

CFS = Dividends Paid - (Ending Common Stock - Beginning Common Stock)

$500 = Dividends Paid - ($500 - $400)

Dividends Paid = $600

answered by: anonymous