Part A: Calculating Operating Cash Flows and Net Working Capital 1. Create an In

Question

Part A: Calculating Operating Cash Flows and Net Working Capital 1. Create an Income Statement. Tally Corp has the following information for 2014: Sales $235,000 Cost $141,000 Other Expenses $7,900 Depreciation Expense-$17,300 Interest Expense- $12,900 Taxes $19,565 Dividends-$12,300 2014 New Equity- $6,100 Net New Long-term Debt $(4,500) Change in Fixed Assets- $25,000 2. Answer the following questions: What is the 2014 Operating Cash Flow? What is the 2014 Cash Flow to Creditors? What is the 2014 Cash Flow to Stockholders? If Net Fixed Assets increased by $25,000 during the year what is the addition to NWC? 1. 2. 3. 4.

Explanation / Answer

1. Income statement

2.

1. Operating cash flow
= Net operating income + Depreciation expense - Taxes
= $68,800 + $17,300 - $19,565
= $66,535

2. Cash flow to creditors
= Interest expense - Net new long-term debt
= $12,900 - $4,500
= $8,400

3. Cash flow to stockholders
= Dividends paid - Net New Equity
= $12,300 - $6,100
= $6,200

4. Addition to NWC:

Cash flow from assets = Cash flow to creditors + Cash flow to stockholders
Cash flow from assets = $8,400 + $6,200
Cash flow from assets = $14,600

Net capital spending = Depreciation + Increase in net fixed assets
Net capital spending = $12,300 + 25,000
Net capital spending = $37,300

Cash flow from assets = Operating cash flow - Net capital spending - Addition to NWC
$14,600 = $66,535 - $37,300 - Addition to NWC
Addition to NWC = $14,635

Sales $235,000 Less: cost of goods sold -141,000 Gross margin $94,000 Less: Operating expenses: Depreciation expense 17,300 Other expenses 7,900 -25,200 Net operating income $68,800 Less: Interest expense -12,900 Income before tax $55,900 Less: Income tax expense -19,565 Net income $36,335

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