Titan Football Manufacturing had the following operating results for 2014: sales = $19,840; cost of goods sold = $13,920; depreciation expense = $2,310; interest expense = $315; dividends paid = $610. At the beginning of the year, net fixed assets were $16,800, current assets were $3,000, and current liabilities were $2,010. At the end of the year, net fixed assets were $19,940, current assets were $3,400, and current liabilities were $2,100. The tax rate for 2014 was 30 percent. (Enter your answers as directed, but do not round intermediate calculations.)

Titan Football Manufacturing had the following operating results for 2014: sales = $19,840; cost of goods sold = $13,920; depreciation expense = $2,310; interest expense = $315; dividends paid = $610. At the beginning of the year, net fixed assets were $16,800, current assets were $3,000, and current liabilities were $2,010. At the end of the year, net fixed assets were $19,940, current assets were $3,400, and current liabilities were $2,100. The tax rate for 2014 was 30 percent. (Enter your answers as directed, but do not round intermediate calculations.)

Requirement 1:

What is net income for 2014? (Round your answer to the nearest whole dollar amount (e.g., 32).)

Net income

$

Requirement 2:

What is the operating cash flow during 2014? (Round your answer to the nearest whole dollar amount (e.g., 32).)

Operating cash flow

$

Requirement 3:

What is the cash flow from assets during 2014? (Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar amount (e.g., 32).)

Cash flow from assets

$

Requirement 4:

Assume no new debt was issued during the year.

(a)	What is the cash flow to creditors during 2014? (Round your answer to the nearest whole dollar amount (e.g., 32).)

Cash flow to creditors

$

(b)	What is the cash flow to stockholders during 2014? (Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar amount (e.g., 32).)

Cash flow to stockholders

$

Explanation: 1:

To calculate the OCF, we first need to construct an income statement. The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

Income Statement
Sales	$	19,840
Costs of goods sold		13,920
Depreciation		2,310
EBIT	$	3,610
Interest		315
Taxable income	$	3,295
Taxes (30%)		989
Net income	$	2,307

2:

The operating cash flow for the year was:

OCF = EBIT + Depreciation – Taxes

OCF = $3,610 + 2,310 – 989 = $4,932

To calculate the cash flow from assets, we also need the change in net working capital and net capital spending. The change in net working capital was:

Change in NWC = NWCend – NWCbeg

Change in NWC = (CAend – CLend) – (CAbeg – CLbeg)

Change in NWC = ($3,400 – 2,100) – ($3,000 – 2,010)

Change in NWC = $310

  

And the net capital spending was:

Net capital spending = NFAend – NFAbeg + Depreciation

Net capital spending = $19,940 – 16,800 + 2,310

Net capital spending = $5,450

3:

So, the cash flow from assets was:

Cash flow from assets = OCF – Change in NWC – Net capital spending

Cash flow from assets = $4,932 – 310 – 5,450

Cash flow from assets = –$829

The cash flow from assets can be positive or negative, since it represents whether the firm raised funds or distributed funds on a net basis. In this problem, even though net income and OCF are positive, the firm invested heavily in fixed assets and net working capital; it had to raise a net $829 in funds from its stockholders and creditors to make these investments.

4a:

The cash flow to creditors was:

Cash flow to creditors = Interest – Net new LTD

Cash flow to creditors = $315 – 0

Cash flow to creditors = $315

4b:

Rearranging the cash flow from assets equation, we can calculate the cash flow to stockholders as:

  

Cash flow from assets = Cash flow to stockholders + Cash flow to creditors

–$829 = Cash flow to stockholders + $315

Cash flow to stockholders = –$1,144