You have just been hired as a financial analyst for Basel Industries. Unfortunat

Question

You have just been hired as a financial analyst for Basel Industries. Unfortunately, company headquarters (where all of the firm's records are kept) has been destroyed by fire. So, your first job will be to recreate the firm's cash flow statement for the year just ended. The firm had $100,000 in the bank at the end of the prior year and its working capital accounts except cash remained constant during the year. It earned $5 million in net income during the year but paid $750,000 in dividends to common shareholders. Throughout the year, the firm purchased $5.4 million of machinery that was needed for a new project. You have just spoken to the firm's accountants and annual depreciation expense for the year is $460,000; however, the purchase price for the machinery represents additions to property, plant, and equipment before depreciation. Finally, you have determined that the only financing done by the firm was to issue long-term debt of $1 million at a 6% interest rate. What was the firm's end-of-year cash balance? Recreate the firm's cash flow statement to arrive at your answer. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar, if necessary.

Explanation / Answer

Formula: change in cash = net cash from operating activities- net cash used in investing activities+net cash from financing activities.

year end cash balance = opening balance+change in cash

= $100,000+250,000 = $350,000. This is the year end balance.

Cash flow statement in $ Net profit 5,000,000 Adjustments for: Depreciation 460,000 Add: changes in working capital 0 Net cash from operating activities 5,460,000 Purchase of fixed assets -5,400,000 Net cash used in investing activities -5,400,000 Issue of long term debt 1,000,000 dividend paid -750,000 Interest paid @ 6% on debt of $1 million -60,000 Net cash from financing activities 190,000 Change in cash 250,000

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