During the year, a ﬁrm paid $25,000 in interest expense and its long-term debt decreased from $350,000 to $250,000. What is the ﬁrm's cash ﬂow to creditors?

Question

Quizplus · Accepted Answer

The cash flow to creditors is calculated as the interest paid plus the net reduction in debt. The firm paid $25,000 in interest and reduced its debt by $100,000 ($350,000 - $250,000), so the cash flow to creditors is $25,000 + $100,000 = $125,000.

During the Year, a ﬁRm Paid $25,000 in Interest Expense