Question

Jetson Spacecraft Corp. shows the following information on its 2015 income statement: sales = $317512; costs = $227130; other expenses = $6574; depreciation expense = $19631; interest expense = $14106; taxes = $15384; dividends = $11628. In addition, you’re told that the firm issued $6862 in new equity during 2015 and redeemed $4618 in outstanding long-term debt. If net fixed assets increased by $21412 during the year, what was the addition to NWC?

Answer 1

Ans:

Cash flow from assets = Operating cash flow - Change in NWC - Net Capital Expenditure

$23,490 = $68,424 - Change in NWC - $41,043

So Change in NWC = $ 3,891

      addition to NWC during the year was $3,891

Workings:

1)Operating Cash Flow = EBIT + Depreciation - Taxes

                                  = $ 64,177 + $ 19,631 - $ 15,384

                                  = $ 68,424

Note:

Statement showing EBIT

Sales	$317,512
Less:
Costs	$227,130
Other Expenses	$6574
Depreciation Expense	$19,631
EBIT	$ 64,177

2) Cash flow to creditors = Interest paid - Fresh Borrowings

                                    = $ 14,106 - ( - $ 4,618)

                                    = $ 18,724

Note:

Negative because redemption of loan outstanding

3) Cash flow to stockholders = Dividends paid - Fresh issuance of equity

                                              = $ 11,628 - $ 6862 = $ 4,766

4) Cash flow from assets = Cash flow to creditors + Cash flow to stockholders

                                         = $ 18,724 + $ 4,766 = $ 23,490

5) Net capital expenditure = Increase in fixed assets + Depreciation

                                          = $ 21,412 + $ 19,631= $ 41,043