Question

Ulǐ https://newconnect.mheducation.com/flow tml 2 Assignment Square Hammer Corp. shows the following information on its 2018 income statement Sales $227,000; costs $129,000; Other expenses $7,900; Depreciation expense $14,200: Interest expense $13,700; Taxes $21,770; Dividends $10,500. In addition, you're told that the firm issued $5,200 in new equity during 2018 and redeemed $3,700 in outstanding long-term debt a. What is the 2018 operating cash flow? (Do not round intermediate calculations.) b. What is the 2018 cash flow to creditors? (Do not round intermediate calculations.) c. What is the 2018 cash flow to stockholders? (Do not round intermediate calculations.) d. If net fixed assets increased by $30,000 during the year, what was the addition to NWC? (Do not round intermediate calculations.) a. Operating cash flow b. Cash flow to creditors c. Cash flow to stockholders d. Addition to NWC

Answer 1

1. Operating cash Flow = EBIT - Taxes + Depreciation = (Sales - Cost - Other expense - Depreciation) - Taxes + Depreciation
= (227,000 - 129,000 - 7900 - 14,200) - 21770 + 14200 = 68330

2. Cash Flow to creditors = Interest - New Debt = 13700 + 3700 = 17,400

3. Cash Flow to Equity Holders = Dividend - New Equity = 10,500 - 5200 = 5300

4. Cash Flow from Assets = Cash flow to creditors + Cash flow to equity holders = 17,400 + 5300 = 22,700
Cash flow from Assets = OCF - Increase in Fixed Assets - Increase in NWC
22,700 = 68330 - 30,000 - Increase in NWC
Increase in NWC = 68,330 - 30000 - 22,700 = 15630

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