CHAPTER 2 C-1
CHAPTER 2
CASH FLOWS AT EAST COAST YACHTS
The operating cash flow for the company is:
OCF = EBIT + Depreciation – Current taxes
OCF = $87,531,900 + 19,958,400 – 30,512,400
OCF = $76,877,900
To calculate the cash flow from assets, we need to find the capital spending and change in net working
capital. The capital spending for the year was:
Capital spending
Ending net fixed assets
$350,435,700
– Beginning net fixed assets
317,612,300
+ Depreciation
19,958,400
Net capital spending
$52,781,800
Alternatively, the company purchased $59.5 million in fixed assets and sold $6,718,200, for a total
capital spending of $52,781,800.
And the change in net working capital was:
Change in net working capital
Ending NWC
$538,300
– Beginning NWC
–1,142,400
Change in NWC
$1,680,700
So, the cash flow from assets was:
Cash flow from assets
Operating cash flow
$76,877,900
– Net capital spending
52,781,800
– Change in NWC
1,680,700
Cash flow from assets
$22,415,400
The cash flow to creditors was:
Cash flow to creditors
Interest
$11,000,900
Retirement of debt
22,600,000
CHAPTER 2 C-2
Debt service
$33,600,900
– Proceeds from sale of long-term debt
–40,000,000
Total
–$6,399,100
Alternatively
Beginning long-term debt
$151,860,000
Ending long-term debt
169,260,000
Interest
11,000,900
Total
–$6,399,100
The cash flow to stockholders was:
Cash flow to stockholders
Dividends
$17,374,500
Repurchase of stock
35,640,000
Cash to stockholders
$53,014,500
– Proceeds from new stock issue
24,200,000
Total
$28,814,500
Alternatively
Beginning total equity
$164,609,900
– Ending total equity
181,714,000
Dividends
17,374,500
Retained earnings
28,544,100
Total
$28,814,500
And the cash flow identity was:
Cash flow from assets = Cash flow to creditors + Cash flow to stockholders
$22,415,400 = –$6,399,100 + 28,814,500
The accounting statement of cash flows for the year was:
Accounting Statement of Cash Flows
Operations
Net income
$45,918,600
Depreciation
19,958,400
Changes in assets and liabilities
Accounts receivable
243,300
Inventories
–3,059,550
Accounts payable
979,350
Accrued expenses
705,900
Other
–74,500
CHAPTER 2 C-3
Total cash flow from operations
$64,671,500
Investing activities
Acquisition of fixed assets
–$59,500,000
Sale of fixed assets
6,718,200
Total cash flow from investing activities
–$52,781,800
Financing activities
Retirement of debt
–$22,600,000
Proceeds of long-term debt
40,000,000
Dividends
–17,374,500
Repurchase of stock
–35,640,000
Proceeds from new stock issues
24,200,000
Total cash flow from financing activities
–$11,414,500
Change in cash (on balance sheet)
$475,200
Answers to questions
assets. The firm received $6,399,100 from its creditors, and paid $28,814,500 to its stockholders.