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Balance Sheets for Year Ending 2015 2015 Assets Current Assets: 4,000 Fixed Assets: 14,000 2015 Asset TOTAL: 18,000 2015 Total Debt Current Liabilities: 2,000 Long-Term Debt: 4,000 Total SHE: (Common Stock + paid-in surplus): 6,000 Retained Earnings : 6,000 2015 TOTAL: 18,000 Balance Sheets for Year Ending 2016 2016 Assets Current Assets: 5,200 Fixed Assets: 18,200 2016 Total Assets: $23,400 2016 Total Debt Current Liabilities: 2,600 Long-Term Debt: 5,200 2016 Total SHE: (Common Stock + paid-in surplus): 9,200 Retained Earnings : 6,400 2016 Total: $23,400 2016 Income Statment Sales: 2,000 Cost of Goods Sold: 400 General/Admin Expenses: 200 Depreciation: 200 Earnings before Interest and Taxes: 1,200 Interest paid (10% of LTD): 520 Taxable Income: 680 Taxes paid (30%): 204 Net Income: 476 What was the cash flow to bondholders in 2016? What was the dividend amount paid to shareholders in 2016?
Balance Sheets for Year Ending 2015
2015 Assets
Current Assets: 4,000
Fixed Assets: 14,000
2015 Asset TOTAL: 18,000
2015 Total Debt
Current Liabilities: 2,000
Long-Term Debt: 4,000
Total SHE: (Common Stock + paid-in surplus): 6,000
Retained Earnings : 6,000
2015 TOTAL: 18,000
Balance Sheets for Year Ending 2016
2016 Assets
Current Assets: 5,200
Fixed Assets: 18,200
2016 Total Assets: $23,400
2016 Total Debt
Current Liabilities: 2,600
Long-Term Debt: 5,200
2016 Total SHE: (Common Stock + paid-in surplus): 9,200
Retained Earnings : 6,400
2016 Total: $23,400
2016 Income Statment
Sales: 2,000
Cost of Goods Sold: 400
General/Admin Expenses: 200
Depreciation: 200
Earnings before Interest and Taxes: 1,200
Interest paid (10% of LTD): 520
Taxable Income: 680
Taxes paid (30%): 204
Net Income: 476
What was the cash flow to bondholders in 2016?
What was the dividend amount paid to shareholders in 2016?
Expert Solution
Computation of the cash flow to the bondholders in 2016:-
Net new long-term debt = Ending long-term debt - Beginning long-term debt
= $5,200 - $4,000
= $1,200
Cash flows to bondholders = Interest expense - Net new long-term debt
= $520 - $1,200
= -$680
Computation of the dividend amount paid to shareholders in 2016:-
Dividend paid = Beginning retained earning + Net income - Ending retained earnings
= $6,000 + $476 - $6,400
= $76
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