10. Zigs Industries had the following operating results for 2011: sales = $30,06
ID: 2640566 • Letter: 1
Question
10.
Zigs Industries had the following operating results for 2011: sales = $30,060; cost of goods sold = $20,010; depreciation expense = $5,460; interest expense = $2,940; dividends paid = $1,700. At the beginning of the year, net fixed assets were $17,260, current assets were $5,910, and current liabilities were $3,450. At the end of the year, net fixed assets were $20,910, current assets were $7,390, and current liabilities were $4,040. The tax rate for 2011 was 30 percent.
What is net income for 2011?
What is the operating cash flow for 2011?
What is the cash flow from assets for 2011?
If no new debt was issued during the year, what is the cash flow to creditors?
If no new debt was issued during the year, what is the cash flow to stockholders?
Zigs Industries had the following operating results for 2011: sales = $30,060; cost of goods sold = $20,010; depreciation expense = $5,460; interest expense = $2,940; dividends paid = $1,700. At the beginning of the year, net fixed assets were $17,260, current assets were $5,910, and current liabilities were $3,450. At the end of the year, net fixed assets were $20,910, current assets were $7,390, and current liabilities were $4,040. The tax rate for 2011 was 30 percent.
What is net income for 2011?
What is the operating cash flow for 2011?
What is the cash flow from assets for 2011?
If no new debt was issued during the year, what is the cash flow to creditors?
If no new debt was issued during the year, what is the cash flow to stockholders?
Explanation / Answer
i. Calculation of Net Income for 2011
Income Statement of Zig Industries for 2011
NOTE: There is no operating expense given in the problem and therefore it is taken as NIL
Dividend does not form as expense and thus does not appear in Income statement.
ii. Calculation of Operating Cash flow for 2011
Operating Cash Flow = EBIT + Depreciation - Taxes
= 4,590 + 5,460 - (495)
= 10,050 - 495
= $9,555
iii. Cash Flow from Assets for 2011
Cash Flow from Assets = Operating Cash Flow - Capital Spendings - Additions to Net Working Capital (NWC)
= 9,555- 9,110 - 890
= 455 - 890
= ($445)
Thus, Zig Industries has a negative cash flow from its assets.
Working Notes:
= 20,910 - 17,260 + 5,460
= 3,650 + 5,460
= $9,110
= 3,350 - 2,460
= $890
*Calculation of Ending and Beginning NWC
Ending NWC = Ending CA - Ending CL
= 7,390 -4040
= $3,350
Beginning NWC = Beginning CA - Beginning CL
= 5,910 - 3,450
= $2,460
A. Calculation of Cash Flow to Creditors
Cash Flow to Creditors = Interest paid - Net new Borrowing
= 2,940 - NIL
= $2,940
B. Calculation of Cash Flow to Stockholders
Cash flow to stockholders = Dividends paid
Particulars $ Sales 30,060 Less: Cost of Goods Sold (20,010) Gross Profit 10,050 Less: Operating Costs NIL EBIDTA 10,050 Less: Depreciation (5,460) EBIT 4,590 Less: Interest Expense (2,940) EBT 1,650 Less: Taxes on EBT (@30% on EBT) (495) Net Income 1,155Related Questions
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