Circle the correct answer in each of the following multiple choice questions. A

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Circle the correct answer in each of the following multiple choice questions. A company's operating cash flow is $4.8 million and its change in net working capital for the year is $2.8 million. In order to determine the company's cash flow from assets, you need: Depreciation expense Long term debt Interest expense Net capital spending A company's cash flow to stockholders is $800,000, and its cash flow from assets is $500,000. If $100,000 in interest expense was paid, how much new debt was issued? $300,000 $400,000 ($300,000) ($400,000) A company wants to change the amount of depreciation expense it is recognizing this year from $350,000 to $450,000. If its tax rate is 30%, the effect on operating cash flow from this change will be: ($30,000) $40,000 $30,000 ($40,000) Because a company has decreased its long term debt from $3 million to $2 million its interest expense will now be $400,000. What is this company's cash flow to creditors? ($1,400,000) $1,400,000 $600,000 ($600,000) A company does not pay any dividends and has an ROA of 20%. As a result, its internal growth rate is: 100% Infinity 25%

Explanation / Answer

1. d. Net Capital Spending

2. Cash flow from Assets - Cash flow o shareholders = New debt issued

5,00,000 - 8,00,000 = (3,00,000)

3. Change in Depriciation Expense = 1,00,000

Tax Rate = 30%

Effect on Operating Cash flow = 1,00,000 * 30% = (30,000)

4. Cash Flow to Creditors = Change in Long term Debt + Intesrest Expense = b. $1,400,000

5. Internal Growth RATE = ROA * b / 1-( ROA *b) = 0.2 * 1 / 1- 0.2 = 0.2/0.8 = c. 25%

b = Retention ratio (1- Dividend payout ratio) = 1-0 =1

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