vailue is 10 million and the value is not paid in cash. The firm A will get cash

Question

vailue is 10 million and the value is not paid in cash. The firm A will get cash in the future. In this case, which item in the balance sheet will increase and which item in the balance sheet will decrease? (5 credits) AIR i, en 3. Financial Cash flow and statement of cash flows (10 credits) You are researching Time Manufacturing and have found the following accounting statement of cash flows for the most recent year. You also know that the company paid $84 million in current taxes and had an interest expense of $41 million. Statement of Cash flows(units:million) Operatiorn Net income Depreciation Deferred Taxes Change in Assets and liabilities EB 192 76 OLV

Explanation / Answer

Part 1)

Step 1: Calculate Operating Cash Flow

The value of operating cash flow is arrived as below:

_____

Step 2: Calculate Capital Spending

The value of capital spending is arrived as below:

_____

Step 3: Calculate Additions to Net Working Capital

The value of net working capital is determined as below:

Net Working Capital = Increase in Current Assets + Decrease in Current Liabilities - Increase in Current Liabilities - Decrease in Current Assets = 16 + 7 - 2 - 13 - 17 = -$9

_____

Step 4: Calculate Financial Cash Flow:

The value of financial cash flow is calculated as below:

Financial Cash Flow = Operating Cash Flow - Capital Spending - Additions to Net Working Capital = 322 - 177 - (-9) = $154

_______

Part 2)

The cash flow for debt-holders and stockholders is arrived as below:

____

____

The equations are provided as below:

Cash Flow for Debt-Holders = Interest Expense + Retirement of Debt Obligation - Proceeds from Sale of Long-Term Debt - Proceeds from Issuance of Notes Payable = 41 + 150 - (115 + 43) - 8 = $25

Cash Flow to Stockholders = Dividends Paid + Repurchase of Common Stock = 81 + 11 = $92

Cash Flow to Investors = Cash Flow for Debt-Holders + Cash Flow to Stockholders = 25 + 92 = $117

Net Income 192 Deferred Taxes 13 Current Taxes 84 Pre-Tax Income 289 Interest Expense 41 EBIT 330 Add Depreciation 76 Less Taxes 84 Operating Cash Flow $322

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