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Week 1 Homework

In: Business and Management

Submitted By live1laugh7love
Words 590
Pages 3
Deborah Michelle Messenger
Week 1 Homework
5/8/2016

1. Calculating OCF. Hammett, Inc., has sales of $34,630, costs of $10,340, depreciation expense of $2,520, and interest expense of $1,750. If the tax rate is 35 percent, what is the operating cash flow, or OCF? a. Operating cash flow $ 17283
Sales - Cost - Dep = EBIT
34630 - 10340 - 2520 = 21770

EBIT - Interest = Taxable Income
21770 - 1750 = 20020

Taxes (35%) = 20020 x .35 = 7007

Net income: 20020 - 7007 = 13013

EBIT + dep - less taxes = OCF
21770 + 2520 - 7007 = 17283

2. Calculating Cash Flows. Weiland Co. shows the following information on its 2014 income statement: sales = $167,000; costs = $88,600; other expenses = $4,900; depreciation expense = $11,600; interest expense = $8,700; taxes = $18,620; dividends = $9,700. In addition, you’re told that the firm issued $2,900 in new equity during 2014, and redeemed $4,000 in outstanding long-term debt. b. Calculating Cash Flows. What is the 2014 operating cash flow? i. Income Statement Sales $167,000 Costs 88,600 Other Expenses 4,900 Depreciation 11,600 EBIT $61,900 Interest 8,700 Taxable income $53,200 Taxes 18,620 Net income $34,580 Dividends $9,700 Addition to retained earnings 24,880 Net income = Dividends + Addition to retained earnings Addition to retained earnings = $34,580 – 9,700 Addition to retained earnings = $24,880 OCF = EBIT + Depreciation – Taxes OCF = $61,900 + 11,600 – 18,620 OCF = $54,880

c. What is the 2014 cash flow to creditors? ii. Cash flow to creditors = Interest paid – Net new borrowing Cash flow to creditors = $8,700 – (–$4,000)
Cash flow to creditors = $12,700 d.

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