The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $6.3 million, and the 2018 balance sheet showed long-term debt of $6.5 million. The 2018 income statement showed an interest expense of $220,000. During 2018, the company had a cash flow to creditors of $20,000 and the cash flow to stockholders for the year was $75,000. Suppose you also know that the firm's net capital spending for 2018 was $1,480,000, and that the firm reduced its net working capital investment by $91,000. What was the firm's 2018 operating cash flow, or OCF? (Enter your answer in dollars, not millions of dollars

Question

Sophia

Business

25 October, 09:24

The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $6.3 million, and the 2018 balance sheet showed long-term debt of $6.5 million. The 2018 income statement showed an interest expense of $220,000. During 2018, the company had a cash flow to creditors of $20,000 and the cash flow to stockholders for the year was $75,000. Suppose you also know that the firm's net capital spending for 2018 was $1,480,000, and that the firm reduced its net working capital investment by $91,000. What was the firm's 2018 operating cash flow, or OCF? (Enter your answer in dollars, not millions of dollars

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Bridger Mclean · Answer 1

The firm's operating cash flow is $291000

Explanation:

Operating cash flow is arrived by using the format below:

Net income after tax

Add back dereciation and amortization

Add and (deduct) Reduction in working capital (Increase in working capital)

Add back interest expense on loans

Add back tax expense for the year

Then deduct:

Actual interest paid

Actual tax paid

Using the proforma above, Kerber's Tennis Shop Inc. is shown as:

Net income after tax+Interest expense (add) + reduction in net working capital (add) - increase in creditors' payment (minus)

As a result, operating cash flow=$220000+$91000-$20000

=$291000