The 2017 balance sheet of Kerber\'s Tennis Shop, Inc., showed long-term debt of
ID: 2821016 • Letter: T
Question
The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $3.5 million, and the 2018 balance sheet showed long-term debt of $3.5 million. The 2018 income statement showed an interest expense of $160,000. During 2018, the company had a cash flow to creditors of $160,000 and the cash flow to stockholders for the year was $65,000. Suppose you also know that the firm’s net capital spending for 2018 was $1,360,000, and that the firm reduced its net working capital investment by $67,000. What was the firm’s 2018 operating cash flow, or OCF?
Explanation / Answer
Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders
Cash Flow from Assets = $160,000 + $65,000
Cash Flow from Assets = $225,000
Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Change in Net Working Capital
$225,000 = Operating Cash Flow - $1,360,000 - (-$67,000)
Operating Cash Flow = $1,518,000
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