Question

Ogden Enterprises. shows the following information on its 2018 income statement: sales = $167,000; costs = $88,600; other expenses = $4,900; depreciation expense = $11,600; interest expense == $8,700; taxes = $18,620; dividends = $9,700. In addition, you’re told that the firm issued $2,900 in new equity during 2018, and redeemed $4,000 in outstanding long-term debt. a. What is the 2018 operating cash flow? b. What is the 2018 cash flow to creditors? c. What is the 2018 cash flow to stockholders? d. If net fixed assets increased by $23,140 during the year, what was the addition to NWC?

Answer 1

Answer a.

EBIT = Sales - Costs - Other Expenses - Depreciation Expense
EBIT = $167,000 - $88,600 - $4,900 - $11,600
EBIT = $61,900

Operating Cash Flow = EBIT + Depreciation Expense - Taxes
Operating Cash Flow = $61,900 + $11,600 - $18,620
Operating Cash Flow = $54,880

Answer b.

Cash Flow to Creditors = Interest Expense - Net New Long-term Debt
Cash Flow to Creditors = $8,700 - (-$4,000)
Cash Flow to Creditors = $12,700

Answer c.

Cash Flow to Stockholders = Dividends - Net New Equity
Cash Flow to Stockholders = $9,700 - $2,900
Cash Flow to Stockholders = $6,800

Answer d.

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders
Cash Flow from Assets = $12,700 + $6,800
Cash Flow from Assets = $19,500

Cash Flow from Assets = Operating Cash Flow - Increase in Net Fixed Assets - Addition to NWC
$19,500 = $54,880 - $23,140 - Addition to NWC
Addition to NWC = $12,240