You have just been hired as a financial analyst for Basel Industries. Unfortunat

Question

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 $800,000 in dividends to common shareholders. Throughout the year, the firm purchased $5.4 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 $460,000; 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 5% 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.

Explanation / Answer

Basel Industries

Cash Flow Statement

The firm's end-of-year balance was $ 360,000

$ $ Cash flows from operating activities Net income 5,000,000 Add depreciation expense 460,000 Interest expense 50,000 Cash provided by operations 5,510,000 Cash flows from investing activities Purchase of plant (5,400,000) Net cash used in investing activities (5,400,000) Cash flows from financing activities Issue of long term debt 1,000,000 Interest paid (50,000) Dividends paid (800,000) Net cash provided by financing activities 150,000 Net increase in cash & cash equivalents 260,000 Beginning cash & cash equivalents 100,000 Ending cash & cash equivalents 360,000

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