Zigs Industries had the following operating results for 2011: sales = $27,960; c
ID: 2726485 • Letter: Z
Question
Zigs Industries had the following operating results for 2011: sales = $27,960; cost of goods sold = $19,360; depreciation expense = $4,940; interest expense = $2,190; dividends paid = $1,050. At the beginning of the year, net fixed assets were $16,680, current assets were $5,780, and current liabilities were $3,300. At the end of the year, net fixed assets were $20,260, current assets were $7,116, and current liabilities were $3,840. The tax rate for 2011 was 30 percent.
If no new debt was issued during the year, what is the cash flow to creditors?
If no new debt was issued during the year, what is the cash flow to stockholders? (Negative amount should be indicated by a minus sign.)
a. What is net income for 2011?Explanation / Answer
Part A
Sales
27960
(-) cost of goods sold
-19360
Gross profit
8600
(-) Depreciation
-4940
EBIT
3660
(-) Interest
-2190
EBT
1470
(-) taxes 30%
-441
Net Income
1029
Part B
Operating cash flow =EBIT ( 1-t) + Depreciation
= 3660 x (1-0.30) +4940
= 7502
Part C
Cash flow from asset= operating cash flow – capital spending – net working capital
= 7502 – (20260 -16680) – (7616-3840-5780+3300)
= 2626
Part d
Cash flow to creditors = interest – net new debt
= 2190 -0
= 2190
Sales
27960
(-) cost of goods sold
-19360
Gross profit
8600
(-) Depreciation
-4940
EBIT
3660
(-) Interest
-2190
EBT
1470
(-) taxes 30%
-441
Net Income
1029
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