Question

Nanticoke Industries had the following operating results for 2018: sales $28,560; cost of goods sold = $19,460; depreciation expense = $5,020; interest expense = $2,340; dividends paid = $1,150. At the beginning of the year, net fixed assets were $16,980, current assets were $5,800, and current liabilities were $3,280. At the end of the year, net fixed assets were $20,360, current assets were $7,360, and current liabilities were $3,900. The tax rate for 2018 was 30 %. a. What is net income for 2018? (Negative answers should be indicated by a minus sign. Omit $ sign in your response.) Net income $ 1,218 b. What is the operating cash flow for 2018? (Negative answers should be indicated by a minus sign. Omit $ sign in your response.) Operating cash flow $ 8,578 c. What is the cash flow from assets for 2018? (Negative answer should be indicated by a minus sign. Omit $ sign in your response.) Cash flow from assets 798 d. If no new debt was issued during the year, what is the cash flow to creditors? What is the cash flow to shareholders? (Negative answers should be indicated by a minus sign. Omit $ sign in your response.) Cash flow to creditors $ 2,340 Cash flow to shareholders $ -1,560

Answer 1

c) Cash flow from assets for 2018:

Working Capital = Current Assets - Current Liabilities

Change in Net Working Capital (NWC) = Ending NWC - Begining NWC

= ($7,360 - $3,900) - ($5,800 - $3,280)

= $3,460 - $2,520

= $940

Net Capital Spending = Ending Fixed Assets - Begining Fixed Assets + Depreciation

= $20,360 - $16,980 + $5,020

= $8,400

Therefore, Cash Flow from Assets = Operating Cash FLow - Change in NWC - Net capital Spending

= $8,578 - $940 - $8,400

= - $762

NOTE: Cash flow from assets can also be calculated as = Cash flow to Shareholders + Cash flow to creditors

= (- $3,102 + $2,340) = - $762   

d) Cash Flow to Shareholder's :

Equity = (Fixed Assets + Current Assets) - Current Liabilities

Begining Equity  = ($16,980 + $5,800) - $3,280

= $19,500

Ending Equity = ($20,360 + $7,360) - $3,900

= $23,820

Increase in Equity = Ending Equity - Begining Equity

= $23,820 - $19,500

= $4,320

Net New Equity = Increase in equity - Retained Earnings

Retained earnings = Net Income - Dividends = $1,218 - $1,150 = $68

Net New Equity = $4,320 - $68

= $4,252

Therefore, Cash FLow to shareholder's = Dividends - Net New Equity

= $1,150 - $4,252

= - $3,102