Question

Your company, showed long-term debt of 1.7$ million, and the December 31,2006 balance sheet showed long term debt of 1.9$ million. The 2006 income statement showed an interest expense of 650,000$. What is the firm's cash flow to creditors in 2006?

The december 31,2005 balance sheet showed 180,000$ in the common account and 3.7$ million in the additional paid-in surplus account. The december 31,2006 balance sheet showed 195,000$ in the common account and 3.95$ million in addtional paid in surplus account. If the company paid out 80,000$ in cash dividends during 2006, what was the cash flow to stockholders for the year?

Given the above information, suppose you also know the firm's net capital spending for 2006 was 760,000$ and that the firm reduced its net working capital investment by 135,000$. What was the firm's 2006 operating cash flow?

Show your work.

Answer 1

CASH FLOW TO CREDITORS = INTEREST PAID - NET NEW BORROWINGS

CASH FLOW TO CREDITORS = 650000 - (1900000-1700000) = 450000

CASH FLOW TO STOCK HOLDERS = DIVIDEND PAID - NET NEW EQUITY

CASH FLOW TO STOCK HOLDERS = 80000 - (195000 + 3950000 - 180000 -3700000) = -185000

NOW CASH FLOW FROM ASSETS = CASHFLOW FROM CREDITORS + CASH FLOW FROM STOCK HOLDERS = 450000 -185000 = 265000

NOW OPERATING CASHFLOW = CASHFLOW FROM ASSETS + CHANGE IN WORKING CAPITAL + CAPITAL SPENDING

OPERATING CASHFLOW = 265000 + (-135000) + 760000 = 890000