1. We know that 10 cans are sold each period within the problem at $10 per can,

Question

1. We know that 10 cans are sold each period within the problem at $10 per can, the cost of producing each can is $6, there is no depreciation, the tax rate is 35%, and inventory is valued at cost.

We want to calculate the cash flow in period 10. The projects balance sheet at the end of period 9 is given by:

Assets:

Fixed Assets: 0

Current Assets: 100

Accounts Receivable: 46

Inventory: 54

Liabilities:

Shareholders Equity: 20

Current Liabilities: 80

Accounts Payable: 80

Assume all revenues and costs incurred in period 10 are paid in cash.

Find the cash flow in period 10 for each of the following cases. Do this in two ways: (1) as Cash Received – Cash paid and (2) As Net Income – Change in Net Working Capital

A. The people who owed us money from last period pay us $40 of the amount they owed

B. In addition to costs in period 10, we pay our suppliers $20 of the amount we owe them from period 9

C. We produce 8 cans but we sell 10

Explanation / Answer

1. As Cash Received – Cash paid:-

2. As Net Income – Change in Net Working Capital:-

Please Rate or comment if you have any doubt regarding this solution.

Particulars a b c Cash from sales (100+40) = 140 100 100 Less cash paid for costs 60 (60+20) = 80 (8*6) = 48 Less cash paid for taxes @ 35% 40 * 35% = 14 14 14 Total 66 6 38

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