Question

Question 3 2 pts The 2013 balance sheet of Maria's Tennis Shop, Inc., showed long-term debt of $2.5 million, and the 2014 balance sheet showed long-term debt of $2.7 million. The 2014 income statement showed an interest expense of $552,000. During 2014, Maria's Tennis Shop, Inc., had a cash flow to stockholders for the year of $305,000. Suppose you also know that the firm's net capital spending for 2014 was $846,000, and that the firm reduced its net working capital investment by $92,000 What was the firm's 2014 operating cash flow, or OCF? (Round final answer to the nearest whole dollar. Do not round intermediate calculations). Topic: Cash Flow Identity

Answer 1

Let’s first calculate the cash flow from assets in following manner

Cash flow from assets = Cash flow to creditors + Cash flow to stockholders

Where,

Cash flow to creditors = Interest paid – Net new borrowing

= Interest paid – (long-term debt in 2014 – long-term debt in 2013)

= $552,000 – ($2,700,000 – $2,500,000)

Cash flow to creditors = $552,000 – $200,000 = $352,000

And

Cash flow to stockholders = $305,000

Therefore, Cash flow from assets = $352,000 + $305,000= $657,000

The cash flow from asset can be calculated in following manner also

Cash flow from assets = Operating cash flow – Change in Net Working Capital – Net capital spending

$657,000 = Operating cash flow – (–$92,000) – $846,000

$657,000 = Operating cash flow + $92,000 – $846,000

Operating cash flow = $657,000 – $92,000 + $846,000

Operating cash flow = $1,411,000

Therefore the firm’s 2014 Operating cash flow (OCF) was $1,411,000