Question

Cardinal Industries had the following operating results for 2018: Sales = $34,116; Cost of goods sold = $24,114; Depreciation expense = $5,977; Interest expense = $2,700; Dividends paid = $1,978. At the beginning of the year, net fixed assets were $19,920, current assets were $7,040, and current liabilities were $3,980. At the end of the year, net fixed assets were $24,484, current assets were $8,672, and current liabilities were $4,655. The tax rate for 2018 was 25 percent. a. What is net income for 2018? (Do not round intermediate calculations.) b. What is the operating cash flow for 2018? (Do not round intermediate calculations.) c. What is the cash flow from assets for 2018? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) d. If no new debt was issued during the year, what is the cash flow to creditors? (Do not 1. round intermediate calculations.) d- If no new debt was issued during the year, what is the cash flow to stockholders? (Do 2. not round intermediate calculations. A negative answer should be indicated by a minus sign.)

Answer 1

Answer:

Part a:
Gross Profit=Sales - cost of goods sold=34116-24114=10002
EBIT=Gross Profit- Depreciation expense=10002-5977=4025
EBT=EBIT-Interest=4025-2700=1325
Net Income=EBT*(1-Tax)=1325*(1-25%)=$993.75

Part b:
Operating cash flow=EBIT+Depreciation-Taxes
=EBIT+Depreciation-EBT*(Tax rate)
=4025+5977-1325*(25%)
=10002-331.25=$9670.75

Part c:
Change in net working capital=Ending net working capital - Beginning net working capital
=[(Ending current assets-Ending current liabilities)-(Beginning current assets-Beginning current liabilities)]
=[(8672-4655)-(7040-3980)]
=4017-3060
=$957

Net capital spending=Ending fixed assets + Depreciation - Beginning fixed assets
Net capital spending=24484 + 5977 - 19920=$10541

Cash flow from assets=Operating cash flow-Change in net working capital-Net capital spending
=9670.75-957-10541
=-$1827.25

Part d 1:
Cash flow to creditors=Interest expense-Net new debt
=2700-0
=$2700

Part d 2:
Cash flow to stockholders=Cash flow from assets-Cash flow to creditors
=-1827.25-2700
=-$4527.25