Use the following information for Ingersoll, Inc., (assume the tax rate is 30 pe

Question

Use the following information for Ingersoll, Inc., (assume the tax rate is 30 percent):

  

For 2014, calculate the cash flow from assets, cash flow to creditors, and cash flow to stockholders. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).)

  

2013 2014   Sales $ 16,073 $ 15,636   Depreciation 1,751 1,826   Cost of goods sold 4,429 4,797   Other expenses 991 869   Interest 840 971   Cash 6,202 6,736   Accounts receivable 8,130 9,697   Long-term debt 20,590 24,861   Net fixed assets 51,086 57,060   Accounts payable 5,788 6,151   Inventory 14,436 15,378   Dividends 1,400 1,708

Explanation / Answer

Cash flow from assets for 2014 = operating cash flow - capital spending - Additions to net working capital

Operating cash flow = earnings before interest and tax (EBIT) +Depreciation - taxes

EBIT = sales - cost of good sold - depreciation = 15636 - 4797 - 1826 = $9,013

Taxes = 30% of profit before tax (PBT) . PBT = EBIT - other expenses - interest = 9013 - 869 - 971 = $7,173. Taxes = 30% of 7173 = $2,151.90

So, operating cash flow = ebit +depreciation - taxes = 9013+1826 - 2151.90 = $8,687.10

capital spending = ending net fixed assets - beginning net fixed assets + depreciation

= 57,060 - 51,086 + 1,826 = $7,800

additions to net working capital: ending net working capital = [6736 (cash)+9697 (receivables)+15378 (inventory) - 6151 (payables)] = $25,660

opening net working capital = [6202 (cash)+8130 (receivables)+14436 (inventory) - 5788 (payables)] = 22,980

additions = ending net working capital - opening net working capital = 25660 - 22980 = $2,680

So, cash flow from assets = operating cash flow - capital spending - Additions to net working capital = 8687.10 - 7800 - 2680 = - $ (1,792.9)

cash flow to creditors = beginning long term debt - ending long term debt+interest = 20,590 - 24,861 + 971 = - $(3,300). As the amount is negative, it means cash flow is positive from creditors i.e new debt was taken.

cash flow to stockholders = dividends paid = - $(1,708)

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