Cardinal Industries had the following operating results for 2018: Sales=$33,409;
ID: 2819046 • Letter: C
Question
Cardinal Industries had the following operating results for 2018: Sales=$33,409; Costs of goods sold= $23,771; Depreciation expense=$5,907; Interest expense= $2,665; Dividends paid= $1,915. At the beginning of the year, net fixed assets were $19,850, current assets were $6,991, and current liabilities were $3,938. At the end of the year, net fixed assets were $24,421, current assets were $8,630, and current liabilties were $4,592. The tax rate for 2018 was 23 percent.
A. What is net income for 2018?
b. What is the operating cash flow for 2018?
c. What is the cash flow from assets for 2018?
d. If no new debt was issued during the year, what is the cash flow to creditors?
e. If no new debt was issued during the year, what is the cash flow to stockholder?
Explanation / Answer
Answer a.
EBIT = Sales - Cost of Goods Sold - Depreciation Expense
EBIT = $33,409 - $23,771 - $5,907
EBIT = $3,731
EBT = EBIT - Interest Expense
EBT = $3,731 - $2,665
EBT = $1,066
Taxes = EBT * tax rate
Taxes = $1,066 * 23%
Taxes = $245.18
Net Income = EBT - Taxes
Net Income = $1,066 - $245.18
Net Income = $820.82
Answer b.
Operating Cash Flow = EBIT + Depreciation - Taxes
Operating Cash Flow = $3,731 + $5,907 - $245.18
Operating Cash Flow = $9,392.82
Answer c.
Change in NWC = Ending NWC - Beginning NWC
Change in NWC = (Ending Current Assets - Ending Current Liabilities) - (Beginning Current Assets - Beginning Current Liabilities)
Change in NWC = ($8,630 - $4,592) - ($6,991 - $3,938)
Change in NWC = $985
Net Capital Spending = Ending Fixed Assets + Depreciation - Beginning Fixed Assets
Net Capital Spending = $24,421 + $5,907 - $19,850
Net Capital Spending = $10,478
Cash Flow from Assets = Operating Cash Flow - Change in NWC - Net Capital Spending
Cash Flow from Assets = $9,392.82 - $985 - $10,478
Cash Flow from Assets = -$2,070.18
Answer d-1.
Cash Flow to Creditors = Interest Expense - Net New Debt
Cash Flow to Creditors = $2,665 - $0
Cash Flow to Creditors = $2,665
Answer d-2.
Cash Flow to Stockholders = Cash Flow from Assets - Cash Flow to Creditors
Cash Flow to Stockholders = -$2,070.18 - $2,665
Cash Flow to Stockholders = -$4,735.18