Question

National Importers had a beginning balance of net fixed assets of $100,000 and an ending balance of net fixed assets of $138,700. Depreciation expense for the year was $14,784. Net working capital increased during the year from $15,506 to $17,411. During the year, the firm issued $20,000 in net new equity and paid off $23,800 in long-term debt (this means long-term debt decreased). The firm paid $38,600 in dividends and $24,615 in interest over the past year.

1. For the year, what was the cash flow to creditors?
2. For, the year what was the cash flow to stockholders?
3. What was the next capital spending for the year?
4. What was the change in the net working capital?

Answer 1

From the following information, we gather that -

i. Cash flow to creditors is the interest paid plus any new borrowing. Since here, borrowing are actually paid off in current year, the net borrowing is negative.

Cash Flow to creditors = Interest paid - (- Net new borrowing)

= $ 24, 615 - (-$23,800)

= $ 48, 415

ii. Cash flow to stockholders means dividends paid to them less net new equity raised.

Hence, Cash flow to stockholders = Dividends - Net new equity issued.

= $ 38,600 - $ 20,000

= $ 18,600

iii. Net Capital Spending for the year = Ending balance of net fixed assets - beginning balance of assets + depreciation expense of the year

= $ 138,700 - $ 100,000 + $ 14,784

= $ 53,484

iv. Change in Net working capital = $ 17, 411 - $ 15,506

= $ 1905

Working capital increased at $ 1905.