The 2014 balance sheet of Jord
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The 2014 balance sheet of Jordan’s Golf Shop, Inc., showedlong-term debt of $5.8 million, and the 2015 balance sheet showedlong-term debt of $6.05 million. The 2015 income statement showedan interest expense of $195,000. The 2014 balance sheet showed$570,000 in the common stock account and $2.4 million in theadditional paid-in surplus account. The 2015 balance sheet showed$610,000 and $2.8 million in the same two accounts, respectively.The company paid out $565,000 in cash dividends during 2015.Suppose you also know that the firm’s net capital spending for 2015was $1,430,000, and that the firm reduced its net working capitalinvestment by $81,000. |
| What was the firm’s 2015operating cash flow, or OCF? (Do not round intermediatecalculations. Enter your answer in dollars, not millions ofdollars, e.g., 1,234,567.) |
| Operating cashflow | $ |
Answer:
Cash Flow to Creditors
Cash Flow to Creditors = InterestExpenses Paid – Net Increase in Long term debt
= Interest Expenses Paid – [Longterm debt at the end – Long term Debt at the Beginning]
= $195,000 – [$60,50,000 -$58,00,000]
= $195,000 – $50,000
= -$55,000
Cash Flow to Stockholders
Cash Flow to Stockholders = DividendPaid – Net New Equity
= Dividend Paid – [(Common stock atthe end + Additional paid-in surplus account at the end) – (Commonstock at the beginning + Additional paid-in surplus account at thebeginning)
= $565,000 – [($610,000 +$28,00,000) – ($570,000 + $24,00,000)]
= $565,000 – [$34,10,000 -$29,70,000]
= $565,000 – $440,000
= $125,000
Cash Flow from assets
Cash Flow from assets = Cash Flow toCreditors + Cash Flow to Stockholders
= -$55,000 + $125,000
= $70,000
Operating CashFlow
Operating Cash Flow using the CashFlow from assets Equation
We know, Cash flow from assets =Operating Cash flows – Change in Net Working capital – Net CapitalSpending
$70,000 = Operating cash flow –(-$81,000) – $14,30,000
Operating cash flow = $70,000 -$81,000 + $14,30,000
Operating cash flow = $1,419,000
“Therefore, the firm’s 2015operating cash flow, or OCF would be -$1,419,000”
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