Quarles Industries had the following operating results for 2015: sales = $27,360
ID: 2772393 • Letter: Q
Question
Quarles Industries had the following operating results for 2015: sales = $27,360; cost of goods sold = $19,260; depreciation expense = $4,860; interest expense = $2,190; dividends paid = $1,560. At the beginning of the year, net fixed assets were $16,380, current assets were $5,760, and current liabilities were $3,240. At the end of the year, net fixed assets were $20,160, current assets were $7,116, and current liabilities were $3,780. The tax rate for 2015 was 34 percent.
If no new debt was issued during the year, what is the cash flow to creditors? (Do not round intermediate calculations.)
If no new debt was issued during the year, what is the cash flow to stockholders? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.)
a. What is net income for 2015? (Do not round intermediate calculations.)Explanation / Answer
Net income:
= [$27,360-($19,260+$4,860+$2,190)]×(1-34%)
= $693
Operating cash flows:
= Net income + depreciation
= $693+$4,860
= $5,553
Cash Flow from Assets
= Operating Cash Flow
- Capital Spending
- Additions to NWC
= $5,553-$8,640-[($7,116-$5,760)+($3,780-$3,240)]
= $-4,983
Cash flow to stockholders = dividends paid – net new equity raised
= $1,560-0
= $1,560
Cash flow to creditors = interest paid – net new borrowing
= $2,190-$4,983 (Assumed raised through debt)
= $-2,793
Cash Flow from Assets
= Operating Cash Flow
- Capital Spending
- Additions to NWC