Question
Nanticoke Industries had the following operating results for 2018: sales $29,220; cost of goods sold =...
Nanticoke Industries had the following operating results for 2018: sales $29,220; cost of goods sold = $19,560; depreciation expense = $5,100; interest expense = $2,490; dividends paid = $1,250. At the beginning of the year, net fixed assets were $16,880, current assets were $5,820, and current liabilities were $3,360. At the end of the year, net fixed assets were $20,460, current assets were $7,360, and current liabilities were $3,940. The tax rate for 2018 was 30 %. a. What is net income for 2018? (Negative answers should be indicated by a minus sign. Omit $ sign in your response.) Net income $ b. What is the operating cash flow for 2018? (Negative answers should be indicated by a minus sign. Omit $ sign in your response.) Operating cash flow c. What is the cash flow from assets for 2018? (Negative answer should be indicated by a minus sign. Omit $ sign in your response.) Cash flow from assets
d. If no new debt was issued during the year, what is the cash flow to creditors? What is the cash flow to shareholders? (Negative answers should be indicated by a minus sign. Omit $ sign in your response.) Cash flow to creditors Cash flow to shareholders $
Answers
Answer a.
EBIT = Sales - Costs of Goods Sold - Depreciation Expense
EBIT = $29,220 - $19,560 - $5,100
EBIT = $4,560EBT = EBIT - Interest Expense
EBT = $4,560 - $2,490
EBT = $2,070Taxes = EBT * Tax Rate
Taxes = $2,070 * 30%
Taxes = $621Net Income = EBT - Taxes
Net Income = $2,070 - $621
Net Income = $1,449Answer b.
Operating Cash Flow = EBIT + Depreciation Expense - Taxes
Operating Cash Flow = $4,560 + $5,100 - $621
Operating Cash Flow = $9,039Answer 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 = $960Net Capital Spending = Ending Net Fixed Assets + Depreciation - Beginning Net Fixed Assets
Net Capital Spending = $20,460 + $5,100 - $16,880
Net Capital Spending = $8,680Cash 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 = -$601Answer d-1.
Cash Flow to Creditors = Interest Expense - Net New Long-term Debt
Cash Flow to Creditors = $2,490 - $0
Cash Flow to Creditors = $2,490Answer 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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