Problem 3-11 Statement of Cash Flows You have just been hired as a financial ana

Question

Problem 3-11
Statement of Cash Flows

You have just been hired as a financial analyst for Basel Industries. Unfortunately, company headquarters (where all of the firm's records are kept) has been destroyed by fire. So, your first job will be to recreate the firm's cash flow statement for the year just ended. The firm had $100,000 in the bank at the end of the prior year and its working capital accounts except cash remained constant during the year. It earned $5 million in net income during the year but paid $700,000 in dividends to common shareholders. Throughout the year, the firm purchased $5.5 million of machinery that was needed for a new project. You have just spoken to the firm's accountants and annual depreciation expense for the year is $450,000; however, the purchase price for the machinery represents additions to property, plant, and equipment before depreciation. Finally, you have determined that the only financing done by the firm was to issue long-term debt of $1 million at a 6% interest rate. What was the firm's end-of-year cash balance? Recreate the firm's cash flow statement to arrive at your answer. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar, if necessary.

Answer: $_______________

Explanation / Answer

Statement of cash flows

Particulars Amt Amt Operating Activities Net income $5000000 Add: Depreciation $460000 Cash flow from operating activities 5460000 Investing activities Purchase of plant and equipment (5500000) Cash flows from investing activities (5500000) Financing activities Long term debt 1000000 Dividend paid (750000) Cash floes from financing activities 250000 Net cash flow from all activities 210000 Add: Opening cash balance 100000 Cash balance at the end of the year 310000

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