Question

Titan Football Manufacturing had the following operating results for 2016: sales = $19,970; cost of goods sold = $13,790; depreciation expense = $2,180; interest expense = $250; dividends paid = $740. At the beginning of the year, net fixed assets were $23,300, current assets were $3,130, and current liabilities were $1,880. At the end of the year, net fixed assets were $27,740, current assets were $3,660, and current liabilities were $1,970. The tax rate for 2016 was 30 percent.

a. What is the net income for 2016? (Round to the nearest whole number)

b. What is the operating cash flow for 2016? (Round to the nearest whole number)

c. What is the cash from from assets for 2016? (Round to the nearest whole number) Assume no new debt was issued during the year.

d. What is the cash from to creditors for 2016? (Round to the nearest whole number)

e. What is the cash flow to stockholders for 2016?

Answer 1

a. Net Income = (Sales - Cost - Interest expense - Depreciation)*(1-tax Rate) = (19970 - 13790 - 2180 - 250)*(1-30%) = 2625

b. Taxes = (Sales - Cost - Interest expense - Depreciation)*tax Rate = (19970 - 13790 - 2180 - 250)*30% =1125
. Operating cash Flow = EBIT - Taxes + Depreciation = (Sales - Cost - Other expense - Depreciation) - Taxes + Depreciation
= (19970 - 13790 - 2180 - 250) - 1125 + 2180 = 4805

c.
Increase in NWC = (3660-1970)-(3130-1880) = 440
Increase in Fixed Assets = 27740-23300 = 4440
Cash flow from Assets = OCF - Increase in Fixed Assets - Increase in NWC = 4805 -4440 - 440 = -75

d. Cash Flow to creditors = Interest - New Debt = 250 -0 = 250

e. Cash Flow to Equity Holders = Cash Flow from Asset - Cash Flow ti Creditors = -75 - 250 = -325

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