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The 2014 balance sheet of Sugarpova\'s Tennis Shop, Inc., showed long-term debt

ID: 2804400 • Letter: T

Question

The 2014 balance sheet of Sugarpova's Tennis Shop, Inc., showed long-term debt of $2.7 million, and the 2015 balance sheet showed long-term debt of $2.9 million. The 2015 income statement showed an interest expense of $140,000. During 2015, the company had a cash flow to creditors of -$60,000 and the cash flow to stockholders for the year was $70,000. Suppose you also know that the firm’s net capital spending for 2015 was $1,320,000, and that the firm reduced its net working capital investment by $59,000.

What was the firm’s 2015 operating cash flow, or OCF?

The 2014 balance sheet of Sugarpova's Tennis Shop, Inc., showed long-term debt of $2.7 million, and the 2015 balance sheet showed long-term debt of $2.9 million. The 2015 income statement showed an interest expense of $140,000. During 2015, the company had a cash flow to creditors of -$60,000 and the cash flow to stockholders for the year was $70,000. Suppose you also know that the firm’s net capital spending for 2015 was $1,320,000, and that the firm reduced its net working capital investment by $59,000.

Explanation / Answer

Solution :- Cash flow from assets = Cash flow to stockholders + Cash flow to creditors.

= 70000 + (-) 60000

= $ 10,000.

Operating cash flow (OCF) = Cash flow from assets + Change in net working capital + Net capital spending.

= 10000 + (-) 59000 + 1320000

= 1330000 - 59000

= $ 1271000.

Conclusion :- Operating cash flow (OCF) = $ 1271000.