The 2014 balance sheet of Sugarpova\'s Tennis Shop, Inc., showed long-term debt
ID: 2804400 • Letter: T
Question
The 2014 balance sheet of Sugarpova's Tennis Shop, Inc., showed long-term debt of $2.7 million, and the 2015 balance sheet showed long-term debt of $2.9 million. The 2015 income statement showed an interest expense of $140,000. During 2015, the company had a cash flow to creditors of -$60,000 and the cash flow to stockholders for the year was $70,000. Suppose you also know that the firm’s net capital spending for 2015 was $1,320,000, and that the firm reduced its net working capital investment by $59,000.
What was the firm’s 2015 operating cash flow, or OCF?
The 2014 balance sheet of Sugarpova's Tennis Shop, Inc., showed long-term debt of $2.7 million, and the 2015 balance sheet showed long-term debt of $2.9 million. The 2015 income statement showed an interest expense of $140,000. During 2015, the company had a cash flow to creditors of -$60,000 and the cash flow to stockholders for the year was $70,000. Suppose you also know that the firm’s net capital spending for 2015 was $1,320,000, and that the firm reduced its net working capital investment by $59,000.
Explanation / Answer
Solution :- Cash flow from assets = Cash flow to stockholders + Cash flow to creditors.
= 70000 + (-) 60000
= $ 10,000.
Operating cash flow (OCF) = Cash flow from assets + Change in net working capital + Net capital spending.
= 10000 + (-) 59000 + 1320000
= 1330000 - 59000
= $ 1271000.
Conclusion :- Operating cash flow (OCF) = $ 1271000.
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