Question

Use the financial statements of a company to answer the 4 questions that follow it. When answering the questions (filling in the blanks), DO NOT use dollar signs, USE commas to separate thousands, DO NOT use parenthesis to denote negative numbers, USE the negative sign in front of first digit for negative numbers. Round to the nearest dollar. For example, if you obtain $200,436.75 then enter in the box: 200,437 Income Statement year ending 2016 Sales Revenues Cost of goods sold Fixed costs Selling, general, and administrative expenses Depreciation $90,000 54,500 12,000 18,250 1,000 Tax rate Interests paid in 2016 20% $500

Answer 1

To calculate Operating cash flow (OCF), firstly calculate EBIT of the company as follows: EBIT=Sales - Cost of goods sold - Fixed cost-Selling general and admins.expenses- Depreciation =90,000 - 54,500 - 12,000 - 18,250-1,000 =5,250 Thus, the calculated EBIT is 5,250. The tax rate is 20%. Calculate amount of taxes as follows: Taxes=(EBIT - Interest) Tax rate =(5,250 - $500)x20% =950 Thus, the amount of taxes is 950. Calculate OCF of the company as follows: Operating cash flow=Earnings before interest and taxes(EBIT)+Depreciation - Taxes =5,250+1,000-950 =5.300 Thus, the amount of OCF is 5,300.

The following equation is used to calculate the amount of Net capital spending: Net capital spending=Endingnet fixedassets-Begiming net fixedassets +Depreciation Calculate the amount of net capital spending as follows: Net capital spending=Endingnet fixedassets (2016) -Begimingnet fixedassets (2015) +Depreciation =( 69,000–80,000 ) +1,000 =-10,000 Thus, the amount of net capital spending is -10,000. Calculate the current assets of 2015 as follows: Current assets=Cash + Accounts receivable + Inventory =1,000+5,000+5,000 =11,000 Calculate the current assets of 2016 as follows: Current assets=Cash + Accounts receivable + Inventory = 3,000 +3,000 +8,000 =14,000 Calculate the current liabilities of 2015 as follows: Current liabilities=Short-term notes payable + Accounts payable =1,000 + 6,800 =7,800

Calculate the current liabilities of 2016 as follows: Current liabilities=Short-term notes payable + Accounts payable = 2,000 + 8,000 =10,000 Now, calculate the change in net working capital as follows: Changein net working capital = Working capital in 2016-Working capitalin 2015 =(Current assets - Current liabilities -(Current assets - Curent liabilities) =(14,000–10,000)-(11,000 – 7,800) =4,000-3,200 =800 Thus, the change in net working capital for 2016 is 800. Calculate the amount of cash flow from assets using the following equation: Cash flow from assets=Operating cash flow - Net capital spending - Change in NWC =5,300-(-10,000) - 800 =14,500 Thus, the cash flow from assets for 2016 is 14,500.