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Question Completion Status: Moving to another question will save this response. Question 12 of 17 Question 12 4 points Save Answer KMJ Inn reported an operating cash flow of $120,000 in 2017 operations. Their net capital spending was $65,000, and 2017 net working capital was $50,000 higher than 2016's NWC. If their cashflow to shareholders was $5,000 and their interest expense was $5,000, where did KMJ Inn obtain the financing for their 2017 dividend of $6,000? What was the amount of this financing? - No net new long-term debt was issued but $1,000 of net new equity was issued $5,000 of net new long-term debt and $8,900 of net new equity was issued $5,000 of net new long-term debt and $1,000 of net new equity were issued $3,000 of net new long-term debt and $8,000 of net new equity was issued Question 12 of 17

Answer 1

Question 12

Answer is "No net new long-term debt was issued but $1,000 of net new equity was issued.

First we calculate free cash flow available.

free cash flow = operating cash flow - net capital spending - net working capital = $120,000 - $65,000 - $50,000 = $5,000

cash flow to shareholders = dividend paid - net new equity raised

$5,000 = $6,000 - net new equity raised

net new equity raised = $6,000 - $5,000 = $1,000

so $6,000 dividend paid was financed by issuing new equity of $1,000 and free cash flow of $5,000. no net new long-term debt was issued.