I need to find the firms new long term debt added during the yearDuring the year
ID: 2612375 • Letter: I
Question
I need to find the firms new long term debt added during the yearDuring the year, Belyk Paving Co. had sales of $2,393,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,432,000, $435,700, and $490,700, respectively. In addition, the company had an interest expense of $215,700 and a tax rate of 35 percent (ignore any tax loss carryback or carryforward provisions.). Belyk Paving Co. paid out $407,000 in cash dividends. Assume that net capital spending was zero, no new investments were made in net working capital, and no new stock was issued during the year.
Explanation / Answer
Step 1: Calculate Operating Cash Flow:
The operating cash flow has been calculated with the use of following table:
Tax is zero as the net income is negative (EBIT - Interest = 23,600 - 216,200 = -$192,600) and we have to ignore any tax loss carryback or carryforward provisions.
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Step 2: Calculate Cash Flow from Assets:
The cash flow from assets has been calculated with the use of following formula:
Cash Flow from Assets = Operating Cash Flow - Change in NWC - Net New Equity =514,800 - 0 - 0 = $514,800
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Step 3: Calculate Cash Flow To Stockholders:
The cash flow to stockholders has been calculated with the use of following formula:
Cash Flow to Stockholders = Dividends - Net New Equity = 387,000 - 0 = $387,000
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Step 4: Calculate Cash Flow To Creditors:
The cash flow to creditors can be calculated with the use of following equation for Cash Flow from Assets.
Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders
Substituting the values calculated above, we get,
514,800 = Cash Flow to Creditors + 387,000
Rearranging Values, we get,
Cash Flow to Creditors = 514,800 - 387,000 = $127,800
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Step 5: Calculate Cash Flow To Creditors:
The new long term can be calculated with the use of following equation for cash flow to creditors.
Cash Flow to Creditors = Interest - Net New Long Term Debt
Substituting the values calculated above, we get,
127,800 = 216,200 - Net New Long Term Debt
Rearranging Values, we get,
Net New Long Term Debt = 216,200 - 127,800 = $88,400 (answer)
Sales 2,388,000 Less Cost of Goods Sold 1,437,000 Operating Expenses 436,200 Depreciation 491,200 EBIT 23,600 Less Taxes 0 EBT 23,600 Add Depreciation 491,200 Operating Cash Flow $514,800