Question

Weiland Co. shows the following information on its 2019 income statement: sales = $178,000; costs = $103,600; other expenses = $5,100; depreciation expense = $12,100; interest expense = $8,900; taxes = $12,705; dividends = $10,143. In addition, you’re told that the firm issued $2,900 in new equity during 2019 and redeemed $4,000 in outstanding long-term debt.
a. What is the 2019 operating cash flow? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
b. WWhat is the 2019 cash flow to creditors? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
c. What is the 2019 cash flow to stockholders? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
d. If net fixed assets increased by $23.140 during the year, what was the addition to NWC?

Answer 1

Answer:

a) The 2019 operating cash flow is $56,595

b) The 2019 cash flow to creditors is $12,900

c) The 2019 cash flow to stockholders is  $7,243

d) If net fixed assets increased by $23,140 during the year, the addition to Net working capital is $1,212

Explanation:

EBIT = sales  - costs  - other expenses  -  depreciation expense

= $178,000 - $103,600 - $5,100 - $12,100 = $57,200

Assuming all above expenses (excepting depreciation expenses) were paid out by cash, then we can solve the followings:

a) What is the 2019 operating cash flow?

Operating cash flow = EBIT+Depreciation - Tax = $57,200 + $12,100 - $12,705 = $56,595

b) What is the 2019 cash flow to creditors?

The cash flow to creditors = interest expense + redeemed  in outstanding long-term debt = $8,900 + $4,000 = $12,900

c) What is the 2019 cash flow to stockholders?

The cash flow to stockholders = dividends - new equity issued = $10,143 - $2,900 = $7,243

d) If net fixed assets increased by $23.140 during the year, what was the addition to Net working capital?

Cash flow from assets = Cash flow to creditors + Cash flow to stockholders

= $12,900 +$7,243 = $20,143

Net capital expenses = Depreciation + Increase in fixed assets

= $12,100 + $23.140 = $35,240

Cash flow from assets = Operating cash flow - Change in NWC - Net capital expenses

⇔ $20,143 = $56,595 - Change in NWC - $35,240

-> Change in NWC = $56,595 - $35,240 -$20,143 = $1,212