Homework Answers
|
Income statement |
|
|
Sales |
$2350000 |
|
Cost of goods sold |
1925000 |
|
Administrative expenses |
530000 |
|
Depreciation |
420000 |
|
EBIT |
105000 |
|
Interest |
245000 |
|
Taxable income |
(140000) |
|
Taxes (35%) |
0 |
|
Net income |
$(140000) |
Operating cash flow = EBIT + depreciation – taxes = 105000+420000-0 = $525000
In spite of net income being negative, it is possible to pay out dividends for the firm because it has sufficient cash flow.
The procedure to find the new long-term debt is given below:
Cash flow from assets = Operating cash flow – Change in Net working capital – Net capital spending Cash flow from assets = $525,000 – 0 – 0
Cash flow from assets = $525,000 (it assumed that Change in Net working capital = Net capital spending = Net new equity = 0)
Next step,
Cash flow to stockholders = Dividends – Net new equity
Cash flow to stockholders = $395,000 – 0
Cash flow to stockholders = $395,000
Then,
Cash flow from assets = Cash flow to creditors + Cash flow to stockholders $525,000 = Cash flow to creditors + $395,000Cash flow to creditors = $130,000
Lastly,
Cash flow to creditors = Interest – Net new long-term debt
$130,000 = $245,000 – Net new long-term debt
Net new long-term debt = $115,000
Add Answer to:
refer to question 19 to find question 20.
use
the answers from 19 to answer 20....
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