During 2010, Tyrell Corporation had sales of $700,000. Cost of goods sold, admin

Question

During 2010, Tyrell Corporation had sales of $700,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $500,000, $90,000, and $95,000, respectively. In addition, the company had an interest expense of $94,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.) Suppose Tyrell Corporation paid out $58,000 in cash dividends. Is this possible? If spending on net fixed assets and net working capital was zero, and if no new stock was issued during the year, what is the net new long-term debt?

Explanation / Answer

Answer:

Total sales for the year 2010: $700000
Less: Expenses
Cost of goods sold: $500000
Administrative and Selling expenses : $90000
interest expense :   $95000
Depreciation expenses: $94000
Net Loss for the year : -$79000
The only real numbers that matter in paying dividends are "retained earnings" and available cash.
Assuming the co. has retained earnings so tyrell corporation can pay dividends for any sortfall debt can be used.

calculation of debt required:-

Amount available as per income statement= $-79000
Add back the depriciation (non cash) = $95000

amt remained actual =$16000

total amount paid as dividend =$58000

amount of debt required =$ 42000

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