The 2009 balance sheet of Maria\'s Tennis Shop, Inc., showed $3.9 million in lon

Question

The 2009 balance sheet of Maria's Tennis Shop, Inc., showed $3.9 million in long-term debt, $738,000 in the common stock account, and $6.26 million in the additional paid-in surplus account. The 2010 balance sheet showed $4.6 million, $820,800, and $7.37 million in the same three accounts, respectively. The 2010 income statement showed an interest expense of $740,000. The company paid out $400,000 in cash dividends during 2010.


If the firm's net capital spending for 2010 was $740,000, and the firm reduced its net working capital investment by $160,000, the firm's 2010 operating cash flow, or OCF, is $ ???

Explanation / Answer

Change in Debt=4,600,000-3,900,000=700,000 Change in Equity=820,000-738,000=82,000 Change in Surplus=7,370,000-6,260,000=1,110,000 Interest Paid=740,000 Dividend Paid=400,000 Capital Expenditure=740,000 Change in Working Capital=-$160,000 Cash Flow= Proceed from debt + Change in equity + change in surplus- Interest-Dividend-Capital Expenditure- Change in Working Capital Cash Flow= $700,000+$82,000+$1,110,000-$740,000-$400,000-$740,000-(-$160,000) =$1,892,000-$1,720,000 =$172000

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