Question

Alpha Company has EBIT of $50,000 during a particular year. Its depreciation expenses total $10,000 and...

  • Alpha Company has EBIT of $50,000 during a particular year. Its depreciation expenses total $10,000 and it paid income taxes of $12,000. It spent $20,000 net on fixed assets and $5,000 on net working capital. The only cash flow to stockholders is dividends of $15,000. Determine cash flow to creditors during the year.
  • a. $8,000
  • b. $33,000
  • c. $35,000
  • d. $18,000
  • The fixed assets section of CTC’s balance sheet is given below. Depreciation expense during the year is $15,000. Calculate the net capital spending during the year.
    •         
    •          20x1
    •          20x2
    •          Fixed Assets, gross
    •          $100,000
    •          $130,000
    •          Accumulated Depreciation
    •          50,000
    •          60,000
    •          Fixed Assets, net
    •          $50,000
    •          $70,000
  •          

  • a. $20,000
  • b. $30,000
  • c. $35,000
  • d. $45,000
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Answer #1

Ques-1)

Cash Flow to Creditors = Cash Flow from Assets - Cash Flow to Stockholders.

- Cash Flow from Assets = EBIT - Tax Expenses + Depreciation

= $50,000 - $12,000 + $10,000

= $48,000

Cash Flow to Stockholders.= Dividend paid - New equity raised

= $15,000 - 0

= $15,000

Cash Flow to Creditors= $48,000 - $15,000

= $33,000

Option B

Ques-2)

Net capital Spending durng the year = Net Fixed Assets of 20X2 + Depreciation of 20X2 - Net Fixed Assets of 20X1

= $70,000 + $15,000 - $50,000

= $35,000

Option C

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