Question

Nanticoke Industries had the following operating results for 2018: sales $29,220; cost of goods sold = $19,560; depreciationd. If no new debt was issued during the year, what is the cash flow to creditors? What is the cash flow to shareholders? (Neg

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Answer #1

Answer a.

EBIT = Sales - Costs of Goods Sold - Depreciation Expense
EBIT = $29,220 - $19,560 - $5,100
EBIT = $4,560

EBT = EBIT - Interest Expense
EBT = $4,560 - $2,490
EBT = $2,070

Taxes = EBT * Tax Rate
Taxes = $2,070 * 30%
Taxes = $621

Net Income = EBT - Taxes
Net Income = $2,070 - $621
Net Income = $1,449

Answer b.

Operating Cash Flow = EBIT + Depreciation Expense - Taxes
Operating Cash Flow = $4,560 + $5,100 - $621
Operating Cash Flow = $9,039

Answer c.

Change in Net Working Capital = Ending Net Working Capital - Beginning Net Working Capital
Change in Net Working Capital = (Ending Current Assets - Ending Current Liabilities) - (Beginning Current Assets - Beginning Current Liabilities)
Change in Net Working Capital = ($7,360 - $3,940) - ($5,820 - $3,360)
Change in Net Working Capital = $960

Net Capital Spending = Ending Net Fixed Assets + Depreciation - Beginning Net Fixed Assets
Net Capital Spending = $20,460 + $5,100 - $16,880
Net Capital Spending = $8,680

Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Change in Net Working Capital
Cash Flow from Assets = $9,039 - $8,680 - $960
Cash Flow from Assets = -$601

Answer d-1.

Cash Flow to Creditors = Interest Expense - Net New Long-term Debt
Cash Flow to Creditors = $2,490 - $0
Cash Flow to Creditors = $2,490

Answer d-2.

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders
-$601 = $2,490 + Cash Flow to Stockholders
Cash Flow to Stockholders = -$3,091

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