Dan Lugo DeVry University BUSN 379 – Week 1 Assignment

Hammett, Inc., has sales of $34,630, costs of $10,340, depreciation expense of $2,520, and interest expense of $1,750. If the tax rate is 35 percent.

Required:
What is the operating cash flow?
Operating cash flow $ 17283

**Solution
Sales - Cost - Dep = EBIT
34630 - 10340 - 2520 = 21770

EBIT - Interest = Taxable Income
21770 - 1750 = 20020

Taxes (35%) = 20020 x .35 = 7007

Net income: 20020 - 7007 = 13013

EBIT + dep - less taxes = OCF
21770 + 2520 - 7007 = 17283

Weiland Co. shows the following information on its 2014 income statement: sales = $167,000; costs = $88,600; other expenses = $4,900; depreciation expense = $11,600; interest expense = $8,700; taxes = $18,620; dividends = $9,700. In addition, you’re told that the firm issued $2,900 in new equity during 2014, and redeemed $4,000 in outstanding long-term debt. | | | a. Calculating Cash Flows. What is the 2014 operating cash flow? | | | b. What is the 2014 cash flow to creditors? | | | c. What is the 2014 cash flow to stockholders? | | | d. If net fixed assets increased by $23,140 during the year, what was the addition to NWC? |

Current assets -- $10,000
Net Fixed assets --90,000
Total assets -- $100,000

Current liabilities -- $5,000
Long-term debt -- 10,000
Capital -- 85,000
Total L + C = $100,000

You can also just assume $5,000 of net working capital or any other simple number.
Net income is $35,180 less $9,700 of dividends plus $2,900 of new equity = $28,380 added to capital. We also have $4,000 of long-term debt redeemed, and $23,140 of increase in fixed assets giving us the following new balance sheet:

Current assets -- $10,000 +???
Net Fixed assets -- 90,000 + 23,140 = 113,140
Total assets -- $100,000 + 24,380 = 124,380

Current liabilities -- $5,000