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Financial information for Dola Cole: Net income: $95 Interest paid: 30 Taxes:25 Depreciation: 150 EBIT: 150 Beginning net fixed assets $500 Ending net fixed assets $750 Beginning current assets $2,130 Beginning current liabilities $1,620 Ending current assets $2,276 Ending current liabilities $1,710 Ending shareholder equity: 110 Beginning shareholder equity: 100 Dividend paid: 36 Question 1: Calculate cash flow from assets: Question 2: calculate cash flow to stockholders and cash flow to creditors Question 3: Why is CFFA negative? i
Financial information for Dola Cole:
Net income: $95
Interest paid: 30
Taxes:25
Depreciation: 150
EBIT: 150
Beginning net fixed assets $500
Ending net fixed assets $750
Beginning current assets $2,130
Beginning current liabilities $1,620
Ending current assets $2,276
Ending current liabilities $1,710
Ending shareholder equity: 110
Beginning shareholder equity: 100
Dividend paid: 36
Question 1: Calculate cash flow from assets:
Question 2: calculate cash flow to stockholders and cash flow to creditors
Question 3: Why is CFFA negative? i.e. what proportion of CFFA is large negative in Q1
Expert Solution
Ans :
|
Calculation of Cash Flows from Assets (CFFA) Method |
||||||||||
|
1 |
Operating Cash Flows |
= |
EBIT |
+ |
DEP |
- |
TAXES |
|||
|
= |
150 |
+ |
150 |
- |
25 |
|||||
|
= |
275 |
|||||||||
|
2 |
NET CAPITAL SPENDING |
= |
Closing Fixed Assets |
- |
Opening Fixed Assets |
+ |
Depreciation |
|||
|
= |
750 |
- |
500 |
+ |
150 |
|||||
|
= |
400 |
|||||||||
|
3A |
Net working capital (opening) |
= |
Opening CA – |
- |
Opening CL |
|||||
|
= |
2130 |
- |
1620 |
|||||||
|
= |
510 |
|||||||||
|
3B |
Net working capital (closing) |
= |
Closing CA – |
- |
Closing CL |
|||||
|
= |
2276 |
- |
1710 |
|||||||
|
= |
566 |
|||||||||
|
4 |
Changes in Net WC |
= |
Closing Net WC |
- |
Opening Net WC |
|||||
|
= |
(Closing CA – Closing CL) |
- |
(Opening CA – Opening CL) |
|||||||
|
= |
566 |
- |
510 |
|||||||
|
= |
56 |
|||||||||
|
5 |
Cash Flow from Assets |
= |
Operating Cash Flows |
- |
Net Capital Spending |
- |
Changes in Net WC |
|||
|
= |
275 |
- |
400 |
- |
56 |
|||||
|
= |
-181 |
|||||||||
|
6 |
Cash Flow to Creditors |
= |
Interest paid |
- |
Net New Borrowings |
|||||
|
= |
30 |
- |
0 |
|||||||
|
= |
30 |
|||||||||
|
7 |
Cash Flow to Stockholders |
= |
Dividend paid |
- |
Net new Equity |
|||||
|
= |
36 |
- |
10 |
|||||||
|
= |
26 |
|||||||||
|
8 |
Surplus |
= |
CFFA |
- |
DIVIDENDS |
- |
LT DEBTS PAID OFF |
- |
INT PAID |
|
|
= |
-181 |
- |
36 |
- |
- |
30 |
||||
|
= |
-247 |
Summary :
Q1) Cash flow from assets = -181 ( point 5 ABOVE)
Q2) CF TO STOCKHOLDERS & CREDITORS = 26 & 30 ( POINT 7 & 6)
Q3 ) CFFA is (-)ve mainly due to spending on fa i.e. 400 ( point 2 )
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