The Lakeside Inn had operating cash flow of $48,450. Depreciation was $6,700 and interest paid was $2,480. A net total of $2,620 was paid on long-term debt. The firm spent $24,000 on fixed assets and decreased net working capital by $1,330. What was the amount of the cash flow to stockholders?

Question

Quizplus · Accepted Answer

The cash flow to stockholders can be calculated by starting with the operating cash flow, then subtracting the cash flows that went to investments and creditors, and adding any decreases in net working capital (since a decrease in net working capital is effectively a cash inflow). Here's the calculation:Operating Cash Flow = $48,450Depreciation = $6,700 (non-cash expense, already included in operating cash flow)Interest Paid = $2,480 (relevant for calculating cash flow to creditors, not directly to stockholders)Net Payment on Long-term Debt = $2,620 (cash flow to creditors)Capital Expenditures = $24,000 (cash flow for investments)Decrease in Net Working Capital = $1,330 (cash inflow)First, calculate the cash flow to creditors, which is the interest paid plus net payments on long-term debt: $2,480 + $2,620 = $5,100.Then, calculate the total cash outflows for investments, which is the capital expenditures: $24,000.The net cash flow from operations after investments is then: $48,450 (operating cash flow) - $24,000 (capital expenditures) + $1,330 (decrease in NWC) = $25,780.Finally, to find the cash flow to stockholders, subtract the cash flow to creditors from the net cash flow after investments: $25,780 - $5,100 = $20,680.

The Lakeside Inn Had Operating Cash Flow of $48,450