Jetson Spacecraft Corp. shows the following information on its 2011 income state

Question

Jetson Spacecraft Corp. shows the following information on its 2011 income statement: sales = $244,000; costs = $144,000; other expenses = $7,900; depreciation expense = $18,000; interest expense = $13,200; taxes = $21,315; dividends = $10,000. In addition, you’re told that the firm issued $4,700 in new equity during 2011 and redeemed $3,200 in outstanding long-term debt.

a. What is the 2011 operating cash flow?

Operating cash flow_______$

b. What is the 2011 cash flow to creditors?

Cash flow to creditors______$

c. What is the 2011 cash flow to stockholders?

Cash flow to stockholders_________$

d. If net fixed assets increased by $30,000 during the year, what was the addition to NWC?

Addition to NWC________$

Explanation / Answer

a. What is the 2011 operating cash flow?

   OCF = EBIT + Depreciation – Taxes = $74100 + 18000 – 21,315 = $70785

b. What is the 2011 cash flow to creditors?

   CFC = Interest – Net new LTD = $13200 – (–3200) = $16400

c. What is the 2011 cash flow to stockholders?

   CFS = Dividends – Net new equity = $10000 – 4,700 = $5300

d. If net fixed assets increased by $3000 during the year, what was the addition to NWC?

We know that CFA = CFC + CFS, so:

                  CFA = $16400 + 5300 = $21700

CFA is also equal to OCF – Net capital spending – Change in NWC. We already know OCF. Net capital spending is equal to:

      Net capital spending = Increase in NFA + Depreciation = $30000 + 18000 = $48000

Now we can use:

      CFA = OCF – Net capital spending – Change in NWC

      $21700 = $70785 – 48000 – Change in NWC

            Solving for the change in NWC gives $1085, meaning the company increased its NWC by $1085

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