The 2013 balance sheet of Maria\'s Tennis Shop, Inc., showed long-term debt of $
ID: 2655236 • Letter: T
Question
The 2013 balance sheet of Maria's Tennis Shop, Inc., showed long-term debt of $2.7 million, and the 2014 balance sheet showed long-term debt of $2.9 million. The 2014 income statement showed an interest expense of $140,000. During 2014, Maria’s Tennis Shop, Inc., had a cash flow to creditors of -$60,000 and the cash flow to stockholders for the year was $70,000. Suppose you also know that the firm’s net capital spending for 2014 was $1,320,000, and that the firm reduced its net working capital investment by $59,000.
The 2013 balance sheet of Maria's Tennis Shop, Inc., showed long-term debt of $2.7 million, and the 2014 balance sheet showed long-term debt of $2.9 million. The 2014 income statement showed an interest expense of $140,000. During 2014, Maria’s Tennis Shop, Inc., had a cash flow to creditors of -$60,000 and the cash flow to stockholders for the year was $70,000. Suppose you also know that the firm’s net capital spending for 2014 was $1,320,000, and that the firm reduced its net working capital investment by $59,000.
Explanation / Answer
Cash flow to creditors = Interest paid - Net new borrowing = $ 140,000 - ($ 2,900,000 - $ 2,700,000) = - 60,000
Cash flow to stockholders for the year = $ 70,000
Cash flow from assets = Cash flow to creditors + Cash flow to stockholders = -60,000 + 70,000 = 10,000
Operating cash flow = Cash flow from assets + Change in net working capital + Net capital spending
= $10,000 - 59,000 + 1,320,000 = $1,271,000
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