Question

Red Barchetta Company paid $27,770 in dividends and $28,689 in interest over the past year During the year, net working capital increased from $13,650 to $18,369. The company purchased $42.660 in fixed assets and had a depreciation expense of $17.075. During the year, the company issued $25,350 in new equity and paid off $21,210 in long-term debt. What was the company's cash flow from assets?

Multiple Choice
a. $52,916
b. $53,867
c. $52.519
d. $51,540
e. $46,139

Answer 1

The company's cash flow from assets is $48,478.

Step-by-step explanation:

The cash flow from assets can be calculated using the formula:

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders

The Cash Flow to Creditors is the sum of the interest paid and the reduction in long-term debt:

Cash Flow to Creditors = Interest Paid - Reduction in Long-term Debt

Substituting the given values:

Cash Flow to Creditors = $28,689 - ($21,210) = $7,479

The Cash Flow to Stockholders is the sum of dividends paid and the change in net working capital and fixed assets:

Cash Flow to Stockholders = Dividends Paid + Change in Net Working Capital + Change in Fixed Assets - Depreciation Expense

Substituting the given values:

Cash Flow to Stockholders = $27,770 + ($18,369 - $13,650) + ($42,660 - $17,075) - $17,075 = $27,770 + $4,719 + $25,585 - $17,075 = $40,999

Finally, we can calculate the Cash Flow from Assets by summing the Cash Flow to Creditors and Cash Flow to Stockholders:

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders = $7,479 + $40,999 = $48,478

Therefore, the company's cash flow from assets is $48,478.