please show all your calculations: You are given the following information: 2018
ID: 2819842 • Letter: P
Question
please show all your calculations:
You are given the following information: 2018
Sales
$12,000
Cost of goods sold
$5,400
Depreciation expense
$1,000
Interest
$300
Tax rate
35%
2017
2018
Current assets
$900
$1,000
Net fixed assets
$3,800
$4,500
Current liabilities
$300
$400
Long-term debt
$2,000
$2,100
a. Calculate the cash flow from assets for 2018. (Taxes = Earnings before taxes x Tax rate)
b. Calculate the cash flow to shareholders for 2018.
You are given the following information: 2018
Sales
$12,000
Cost of goods sold
$5,400
Depreciation expense
$1,000
Interest
$300
Tax rate
35%
Explanation / Answer
Part a.
Cash Flow from Assets = Operating Cash Flow – Capital Spending – Addition to NWC
Operating Cash Flow = EBIT + Depreciation – Taxes
EBIT = Sales – Cost of Goods Sold – Depreciation
EBIT = $12,000 - $5,400 - $1,000
EBIT = $5,600
Taxes = (EBIT – Interest) * Tax Rate
Taxes = ($5,600 - $300) * 35%
Taxes = $1,855
Operating Cash Flow = $5,600 + $1,000 - $1,855
Operating Cash Flow = $4,745
Capital Spending = Ending FA – Beginning FA + Depreciation
Capital Spending = $4,500 - $3,800 + $1,000
Capital Spending = $1,700
Addition to NWC = Ending NWC – Beginning NWC
Ending NWC = $1,000 - $400 = $600
Beginning NWC = $900 - $300 = $600
Addition to NWC = $600 - $600
Addition to NWC = $0
Cash Flow from Assets = $4,745 - $1,700 - $0
Cash Flow from Assets = $3,045
Part b.
Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Shareholders
Cash Flow to Creditors = Interest Paid – Net New Borrowings
Net New Borrowings = Ending Long Term Debt – Beginning Long Term Debt
Net New Borrowings = $2,100 - $2,000 = $100
Cash Flow to Creditors = $300 - $100
Cash Flow to Creditors = $200
Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Shareholders
$3,045 = $200 + Cash Flow to Shareholders
Cash Flow to Shareholders = $2,845
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