Berea Resources is planning a $75 million capital expenditure program for the co
ID: 2721956 • Letter: B
Question
Berea Resources is planning a $75 million capital expenditure program for the com- ing year. Next year, Berea expects to report to the IRS earnings of $40 million after interest and taxes. The company presently has 20 million shares of common stock issued and outstanding. Dividend payments are expected to increase from the pres- ent level of $10 million to $12 million. The company expects its current asset needs to increase from a current level of $25 million to $30 million. Current liabilities, excluding short-term bank borrowings, are expected to increase from $15 million to $17 million. Interest payments are $5 million next year, and long-term debt retire- ment obligations are $8 million next year. Depreciation next year is expected to be $15 million on the company’s financialstatements,butthecompanywillreport depreciation of $18 million for tax purposes. How much external financing is required by Berea for the coming year?
Explanation / Answer
Berera Resoures Details for coming Year Amt $ Million Net Income as per IRS Return 40 Add Back Tax depreciation 18 Net Cash Income 58 Less Cash outflow for additional Current Asset (5) Add : Cash in from increase in Current Laibilities 2 a Net Cash flow from Operating Activities 55 Capital Expenditure Planned next year (75) b Net Cash flow from Invensting Activities (75) c Long term debt retirement cash outflow (8) Dividend payout (12) Cash flow from Financing Activities (20) d Total Cash flow from Operating , Investing and Financing activities =a+b+c= (40) So the external Financing need will be $40 million next year.
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