Question

Square Hammer Corp. shows the following information on its 2018 income statement: Sales = $394,000: Costs = $300,000; Other expenses = $7,900: Depreciation expense = $19,500; Interest expense = $13,400, Taxes = $18,620; Dividends = $10.500. In addition, you're told that the firm issued $4,900 in new equity during 2018 and redeemed $3,400 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 $25,000 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

	Sales	$      3,94,000
	-Costs	$      3,00,000
	-Other expenses	$           7,900
	-Depreciation expense	$         19,500
	=EBIT	$         66,600
	-Interest	$         13,400
	=EBT	$         53,200
	-Taxes	$         18,620
	=Net income	$         34,580
a]	Operating cash flow = EBIT+Depreciation-Taxes = 66600+19500-18620 =	$         67,480
b]	Cash flow to creditors = Interest expense+(Beginning LT loan-Ending LT loan) = 13400+3400 =	$         16,800
c]	Cash flow to stockholders = Dividends+(Beginning equity-Ending equity) = 10500-4900 =	$           5,600
d]	Cash flow from assets = Cash flow to creditors+Cash flow to stockholders
	CFFA = 16800+5600 =	$         22,400
	CFFA = OCF-Change in NFA-Change in NWC
	Substituting available figures in the
	above equation, we have
	22400 = 67480-25000-Change in NWC
	Addition to NWC = 67480-25000-22400 =	$         20,080