Titan Football Manufacturing had the following operating results for 2010: sales

Question

Titan Football Manufacturing had the following operating results for 2010: sales = $19,810; cost of goods sold = $13,950; depreciation expense = $2,340; interest expense = $330; dividends paid = $580. At the beginning of the year, net fixed assets were $15,300, current assets were $2,970, and current liabilities were $2,040. At the end of the year, net fixed assets were $18,140, current assets were $3,340, and current liabilities were $2,130. The tax rate for 2010 was 30 percent. What is the operating cash flow? Cash flow from assetts? Cash flow to creditors? and Cash flow to stockholders?

Explanation / Answer

a)
Income Statement
Sales------------------------$19,810
Costs-----------------------$13,950
Depreciation---------------$2,340
-------------------------------------------
EBIT--------------------------$3,520
Interest------------------------$330
------------------------------------------
Taxable income-------------$3,190
Taxes-------------------------$1,116.5 (3190*0.35)
------------------------------------------
Net income------------------$2073.5
-----------------------------------------
OCF =EBIT+depreciation-taxes
OCF=3190+2340-1116.5
OCF=$4,413.3
b)
The change in net working capital was
Change in NWC = NWCend – NWCbeg
Change in NWC = (CAend – CLend) – (CAbeg – CLbeg)
Change in NWC = (3340-2130)-(2970-2040)=$280

And the net capital spending was:

Net capital spending = NFAend – NFAbeg + Depreciation

Net capital spending = 18,140-15,300+2340=$5,180

So, the cash flow from assets was:

Cash flow from assets = OCF – Change in NWC – Net capital spending

Cash flow from assets = 4,413.5-280-5180

Cash flow from assets = =-$1,046.5

The cash flow from assets can be positive or negative, since it represents whether the firm raised funds or distributed funds on a net basis. In this problem, even though net income and OCF are positive, the firm invested heavily in both fixed assets and net working capital; it had to raise a net $1046.5 in funds from its stockholders and creditors to make these investments.

c)

The cash flow from creditors was:

Cash flow to creditors = Interest – Net new LTD

Cash flow to creditors = $330 – 0

Cash flow to creditors = $330

d)Rearranging the cash flow from assets equation, we can calculate the cash flow to stockholders as:

Cash flow from assets = Cash flow to stockholders + Cash flow to creditors

-1046.5=Cash flow to stockholders +330

Cash flow to stockholders=$1,376.5

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.