Question

During 2014, Raines Umbrella Corp. had sales of $650435. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $505481, $93119, and $87958, respectively. In addition, the company had an interest expense of $87871 and a tax rate of 34 percent. (Ignore any tax loss carryback or carryforward provisions. This means that if the company does not have any taxable income, they do not pay any tax.) Suppose Raines Umbrella Corp. paid out $52467 in cash dividends. If spending on net fixed assets and net working capital was zero, and if no new stock was issued during the year, what is the net new long-term debt?

Answer 1

Computation of Net income:
Sales revenue			650435
Less: Cost of goods sold			505481
Gross Profit			144954
Less: Expenses
Admin and Selling expense		93119
Depreciation expenses		87958
Interest expensses		87871
Total Expenses			268948
Net Loss			-123994
Cashflows from Operating activities:
Net loss for the year			-123994
Add: Adjustment required
Depreciation expenses			87958
Changes in Current assets and liabilities			0
Net cash used in operating activities				-36036
Cash flows from Investing activities:
Investment in fixed assets				0
Cash flows from Financing activities
Dividend paid				-52467
Net decrease in cash				-88503
However, there is no change in working capital, ending balance of cash remaing same.
Therefore, the above outflows of $ 88503 is financed through issue of new long term debt.
New long term debt = $ 88503