At the beginning of the year, Bob's Cabinet Works had long-term debt of $280 and total debt of $430. At the end of the year, long-term debt was $255 and total debt was $390. The firm paid $20 of interest during the year. What is the amount of the cash flow to creditors?

Question

Quizplus · Accepted Answer

The cash flow to creditors is calculated as the interest paid plus the net reduction in total debt. The net reduction in total debt is the initial total debt minus the final total debt, which is $430 - $390 = $40. Adding the interest paid ($20) to this reduction gives a total cash flow to creditors of $20 + $40 = $60. However, the correct calculation for cash flow to creditors in this context involves considering only the long-term debt reduction and interest paid. The reduction in long-term debt is $280 - $255 = $25. Adding the interest paid ($20) to this gives a total cash flow to creditors of $20 + $25 = $45.

At the Beginning of the Year, Bob's Cabinet Works Had