The 2014 balance sheet of Tian Tian Table Tennis Shop, Inc., showed $3.2 million
ID: 2656106 • Letter: T
Question
The 2014 balance sheet of Tian Tian Table Tennis Shop, Inc., showed $3.2 million in long-term debt, $860,000 in the common stock account, and $5.8 million in the additional paid-in surplus account. The 2015 balance sheet showed $3.6 million, $935,000, and $6.1 million in the same three accounts, respectively. The 2015 income statement showed an interest expense of $190,000. The company paid out $520,000 in cash dividends during 2015. If the firm's net capital spending for 2015 was $850,000, and the firm reduced its net working capital investment by $75,000, the firm's 2015 operating cash flow, or OCF, is
Explanation / Answer
Answer:
Calculations and explanations:
Cash flow from assets = cash flow to creditors+cash flow to stockholders
Cash flow to creditors = Interest paid - net new borrowing = 190,000 - (changes in long term debt) = 190,000 - (3.6 - 3.2) = 190,000 - 0.4 (millions) = 190,000 - 400,000
= -210,000
Cash flow to stockholders = dividends paid-net new equity = 520,000 - [(935,000+6,100,000)-(860,000+5,800,000)] = 145,000
Thus cash flow from assets = -210,000+145,000 = -65,000
The equation that will be used now is: cash flow from assets = OCF-Changes in NWC - Net capital spending
or, -65,000 = OCF - (-75,000) - 850,000
or -65,000 = OCF - 775,000
or OCF = 775,000-65,000
= $710,000
(in $ millions) 2015 2014 Long term debt 3.60 3.20 Common stock 0.9350 0.8600 Additional Paid In surplus 6.10 5.80Related Questions
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