Question

Hoos got your back, ltd, is a large sporting goods company. at the beginning of the most recent year, long-term debt of a firm is $280 and total debt is $340. at the end of the year, long-term debt is $260 and total debt is $350. the interest paid is $30. what is the amount of the cash flow to creditors?

a) -$69

b) $34

c) -$98

d) $98

e) $69

Answer 1

The cash flow to creditors is the interest paid minus the change in long-term debt, which is $10 in this case, but since it's a debt reduction, it's a cash inflow and thus -$10.

Step-by-step explanation:

The cash flow to creditors of Hoos Got Your Back, Ltd can be calculated by finding the difference between the interest paid and the net change in long-term debt. Initially, the long-term debt decreased from $280 to $260, so the net change in long-term debt is $20 ($280 - $260). The interest paid during the year is $30. Cash flow to creditors is, therefore, the interest paid minus the net change in long-term debt: $30 - $20 = $10. However, since debt has decreased, this is a cash inflow, making the correct answer negative. Thus, the total cash flow to creditors is -$10.