Question

Grant Mine paid $27,500 in dividends and $28,311 in interest over the past year while net working capital increased from $13,506 to $18,219. The company purchased $42,000 in net new fixed assets and had depreciation expenses of $16,805. During the year, the firm issued $30,000 in net new equity and paid off $21,000 in long-term debt. What is the amount of the cash flow from assets?

A. $21,811 B. $30,811 C. $36,189 D. $46,811 E. $51,

Answer 1

Solution :

The cash flow from assets is calculated as follows :

Cash flow from assets = Cash flow to shareholders + Cash flow to creditors

Calculation of Cash flow to shareholders :

As pe the information given in the question we have

Issue of net new equity = $ 30,000 ; Dividends paid = $ 27,500

Thus the net Cash flow to shareholders = Dividends paid - Issue of net new equity

= $ 27,500 - $ 30,000 = - $ 2,500   - ( A )

Calculation of Cash flow to creditors :

As pe the information given in the question we have

Long term debt paid off = $ 21,000 ; Interest paid = $ 28,311   ;

Thus the net cash flow to creditors = Long term debt paid off + Interest paid

= $ 21,000 + $ 28,311 = $ 49,311 - ( B )

Thus we have the cash flow from assets as = - $ 2,500 + $ 49,311 = $ 46,811

The solution is option D. $ 46,811