Chad Watering, Inc. had the following operating results for 2012: sales = $5,200

ID: 2775468 • Letter: C

Question

Chad Watering, Inc. had the following operating results for 2012: sales = $5,200; cost of goods sold = $4,500; depreciation expense = $500; interest expense = $150; dividends paid = $110. At the beginning of the year, net fixed assets were $3,900, current assets were $1,000, and current liabilities were $750. At the end of the year, net fixed assets were $4,100, current assets were $1,550, and current liabilities were $900. The tax rate for 2012 was 34 percent. What is the cash flow from assets for 2012?

a -44

b -590

c -320

d -122

e -417

Explanation / Answer

Description

Begin

ending

Change

Net fixed assets

3900

4100

200

Current assets

1000

1550

550

Current liabilities

750

900

150

Operating cash flow:

Net income after tax = (sales – cogs – depreciation-Interest) x (1- tax rate)

= (5200-4500-500-150) x (1-0.34)

=50 x 0.66

= 33

Operating cash flow = net income after tax + depreciation +interest

= 33 +500 +150

= 683

Capital expenditure

Capital expenditure = Change in net fixed assets + Depreciation

= 200 +500

=700

Change in working capital

Change in working capital = change in current assets – change in current liabilities

= 550 -150

= 400

Cash flow from assets = operating cash flow - Capital expenditure - Change in working capital

= 683 -700-400

= -417

Option e is correct.