FINAN 450 chap 2

Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital:

had to decrease

Cash flow from assets is defined as:

operating cash flow minus the change in net working capital minus net capital spending

At the beginning of the year, Nothing More, Corp., had a long-term debt balance of $37,429. During the year, the company repaid a long-term loan in the amount of $10,139. The company paid $3,855 in interest during the year, and opened a new long-term loan for $8,945. What was the cash flow to creditors during the year?

5049 Cash flow to creditors = $10,139 + 3,855 − 8,945 = $5,049

At the beginning of the year, long-term debt of a firm is $274 and total debt is $322. At the end of the year, long-term debt is $252 and total debt is $332. The interest paid is $18. What is the amount of the cash flow to creditors?

$40 CFC = $18 - ($252 - 274) = $40

You are examining a company's balance sheet and find that it has total assets of $19,842, a cash balance of $1,938, inventory of $4,593, current liabilities of $5,189 and accounts receivable of $2,467. What is the company's net working capital?

$3809 NWC = Current assets − Current liabilities NWC = ($1,938 + 2,467 + 4,593) − 5,189 NWC = $3,809

Which one of the following statements concerning the balance sheet is correct?

assets are listed in descending order of liquidity

Highly liquid assets:

can be sold quickly at close to full value

The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the:

income statement

Teddy's Pillows had beginning net fixed assets of $461 and ending net fixed assets of $530. Assets valued at $309 were sold during the year. Depreciation was $22. What is the amount of net capital spending?

$91 Net capital spending = $530 (ending net fixed assets) + 22 (Depreciation) - 461 (beginning net fixed assets) Net capital spending = $91

Tremonti, Inc., is obligated to pay its creditors $7,900 during the year. a. What is the value of the shareholders' equity if assets equal $9,100? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What is the value of the shareholders' equity if assets equal $6,900? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

A. If total assets are $9,100, the owners' equity is: Owners' equity = Max[($9,100 - 7,900), 0] Owners' equity = $1,200 B. If total assets are $6,900, the owners' equity is: Owners' equity = Max[($6,900 - 7,900), 0] Owners' equity = $0

Your firm has net income of $322 on total sales of $1,300. Costs are $720 and depreciation is $120. The tax rate is 30 percent. The firm does not have interest expenses. What is the operating cash flow?

$442 EBIT = $1,300 - 720 - 120 = $460 (Sales - Costs - Depreciation) Taxes = .30 × $460 = $138 (Tax rate × EBIT) OCF = $460 + 120 - 138 = $442 (EBIT + Depreciation - Taxes)

Weiland Co. shows the following information on its 2019 income statement: sales = $178,000; costs = $103,600; other expenses = $5,100; depreciation expense = $12,100; interest expense = $8,900; taxes = $12,705; dividends = $10,143. In addition, you're told that the firm issued $2,900 in new equity during 2019 and redeemed $4,000 in outstanding long-term debt. a. What is the 2019 operating cash flow? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. WWhat is the 2019 cash flow to creditors? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c. What is the 2019 cash flow to stockholders? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) d. If net fixed assets increased by $23,140 during the year, what was the addition to NWC? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

A. EBIT = SALES - COST - OTHER EXP. - DEP. EBIT = 178000 - 103600 - 5100 - 12100 EBIT = 57200 OCF = EBIT + Depreciation - Taxes OCF = $57,200 + 12,100 - 12,705 OCF = $56,595 B. Cash flow to creditors = Interest paid - Net new borrowing Cash flow to creditors = $8,900 - (-$4,000) Cash flow to creditors = $12,900 C. Cash flow to stockholders = Dividends paid - Net new equity Cash flow to stockholders = $10,143 - 2,900 Cash flow to stockholders = $7,243 D. Cash flow from assets = Cash flow to creditors + Cash flow to stockholders Cash flow from assets = $12,900 + 7,243 Cash flow from assets = $20,143 Net capital spending = Depreciation + Increase in fixed assets Net capital spending = $12,100 + 23,140 Net capital spending = $35,240 Cash flow from assets = OCF - Change in NWC - Net capital spending $20,143 = $56,595 - Change in NWC - $35,240 Change in NWC = $1,212