1)A positive cash flow to stockholders indicates which one of the following with

Question

1)A positive cash flow to stockholders indicates which one of the following with certainty?

2)The Lakeside Inn had operating cash flow of $48,450. Depreciation was $6,700 and interest paid was $2,480. A net total of $2,620 was paid on long-term debt. The firm spent $24,000 on fixed assets and decreased net working capital by $1,330. What is the amount of the cash flow to stockholders?

The dividends paid exceeded the net new equity raised. The amount of the sale of common stock exceeded the amount of dividends paid. No dividends were distributed but new shares of stock were sold. Both the cash flow to assets and the cash flow to creditors must be negative. Both the cash flow to assets and the cash flow to creditors must be positive.

Explanation / Answer

HI,

Please find the answers as follows:

Part A:

Option A is the correct answer.

Part B:

Cash Flow from Assets = 48450 (Operating Cash Flow) - (-1330) - 24000 (Fixed Assets Expenditured) = 25780

Cash Flow to Creditors (Interest) = 2480 - (-2620) = 5100

Cash Flow to Stockholders = 25780 - 5100 = 20680

Option E is the correct answer.

Thanks.

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