Question

During 2018, Raines Umbrella Corp. had sales of $800,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $580,000, $90,000, and $150,000, respectively. In addition, the company had an interest expense of $89,000 and a tax rate of 21 percent. (Ignore any tax loss carryforward provisions and assume interest expense is fully deductible.) Suppose the company paid out $53,000 in cash dividends. If net capital spending and net working capital was zero, and if no new stock was issued during the year, what is the net new long-term debt? (Do not round intermediate calculations.)

Answer 1

800,000 =580000+90000 Sales Less: Costs & Expenses Depreciation EBIT Less: Interest Profit before tax Less: Tax @ 35% Net loss $ $ 670,000 150,000 (20,000) 89,000 (109,000) $ (109,000) $ (20,000) EBIT Less: Tax @ 35% Add: Depreciation Operating cash flow 150,000 130,000 Cash flow to creditors 77,000 =130000-53000 Net new LTD $ 12,000 -89000-77000

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