SOLUTIONS B-10We also know that cash flow from assets is equal to the
oper
a
ting cash flow minus the change in networking capital and the net capital spending.
We can use this relationship to find the operating cashflow. Doing so, we find:Cash flow
from assets = OCF – Change in NWC – Net capital spending–$341,000 = OCF – (–
$135,000) – (760,000)OCF = –$341,000 – 135,000 + 760,000OCF = $284,000
Intermediate
14.
a.
To calculate the OCF, we first need to construct an income statement. The
inco
me
statementstarts with revenues and subtracts costs to arrive at EBIT. We then subtract out
interest to gettaxable income, and then subtract taxes to arrive at net income. Doing so,
we get:Income StatementSales $138,000Costs 71,500Other
Expenses 4,100Depreciation 10,100EBIT $52,300Interest 7,900Taxable income
$44,400Taxes 17,760Net income $26,640Dividends $5,400Addition to retained earnings
21,240
D
ividends paid plus addition to retained earnings must equal net income, so:Net income =
Dividends + Addition to retained earningsAddition to retained earnings = $26,640 –
5,400Addition to retained earnings = $21,240
So, the operating cash flow is:OCF = EBIT + Depreciation – TaxesOCF = $52,300 +
10,100 – 17,760OCF = $44,640
b.
The cash flow to creditors is the interest paid, minus any new borrowing. Since the
companyredeemed long-term debt, the new borrowing is negative. So, the cash flow to
creditors is:Cash flow to creditors = Interest paid – Net new borrowingCash flow to
creditors = $7,900 – (–$3,800)Cash flow to creditors = $11,700
CHAPTER
2
B-11
c.
The cash flow to stockholders is the dividends paid minus any new equity. So, the
cas
h
flow to
s
tockholders is:Cash flow to stockholders = Dividends paid – Net new equityCash
flow to stockholders = $5,400 – 2,500Cash flow to stockholders = $2,900
d.
In this case, to find the addition to NWC, we need to find the cash flow from assets. We
can thenuse the cash flow from assets equation to find the change in NWC. We know that