Chapter 2, Question #20: Calculating Cash Flows

2015, Cusic Industries

Sales $20,300
COGS $14,500
Depreciation Expense $2,900
Interest Expense $690
Dividends Paid $660
Tax Rate for 2015: 40%

Beginning of the Year:

Beginning of Year End of Year

NFA $15,470 $17,120
Current Assets $4,630 $5,345
Current Liabilities $2,520 $2,785

a. Net Income for 2015

Sales $20,300
COGS $14,500
Depreciation Expense $2,900
EBIT $2,900 To find taxes, multiply pretax income
Interest Expense $690
by tax rate of 40%
Pretax Income $2,210
Taxes $884
Net Income $1326

b. Operating Cash Flow for 2015

OCF = Operating Income + Depreciation – Tax

OCF = 2,900 + 2,900 – 884

OCF = $4916

c. Cash Flow from Assets 2015

Cash Flow from Assets = OCF – Capital Spending – NWC change

Capital Spending = Ending NFA – Beginning NFA + Depreciation

=17,120-15,470+2,900

=4,550

NWC Change = (5,345-4630) – (2,785-2520)

NWC Change= 715-265= 450

So, Cash flow from Assets = 4916-4550-450

Cash flow from Assets = -$84

Yes this cash flow number can be negative due to the company investing in assets.

d. Cash Flow to Creditors & Stockholders

Cash Flow to Creditors = Interest- Change in LTD

Cash Flow to Creditors = 690- 0

Cash Flow to Creditors = $690

Cash Flow to Stockholders= Cash from Assets- Cash flow to Creditors

Cash Flow to Stockholders= -84-690

Cash Flow to Stockholders = -$774