You are asked to recreate the firm\'s cash flow statement. The firm had $100,000

Question

You are asked to recreate the firm's cash flow statement. The firm had $100,000 in the bank at the end of the prior year and its working capital accounts except cash remain constant during the year. It earned $5 million in net income during the year but paid $750,000 in dividends to common share holders. Throughout the year the firm purchased $5.5 milion of machinery. The annual depreciation expense for the year is $450,000, but the purchase price for the machinery represents additions to property, plant, and equipment before depreciation. The long term debt is $1 million at a 6% interest rate. What was the firm's end of the year cash balance? Recreate the cash flow statement to arrive at your answer.

Explanation / Answer

Net Income $5,000,000 Less: Dividend ($750,000) Less:Capital Expense ($5,500,000) Less: Interest Paid ($60,000) Add: Depreciation $450,000 Total Cash Inflow ($860,000) Previous check balance $100,000 Cash in Hand ($760,000)

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