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The 2017 balance sheet of Kerber’s Tennis Shop, Incorporated, showed $2.2 million in long-term debt, $710,000 in the common stock account, and $6.4 million in the additional paid-in surplus account. The 2018 balance sheet showed $3.9 million, $905,000, and $8.4 million in the same three accounts, respectively. The 2018 income statement showed an interest expense of $200,000. The company paid out $610,000 in cash dividends during 2018. If the firm's net capital spending for 2018 was $850,000, and the firm reduced its net working capital investment by $155,000, what was the firm's 2018 operating cash flow, or OCF?

Sagot :

The firm's 2018 operating cash flow, or OCF is -$2,219,500

How do we determine the operating cash flow?

The operating cash flow can be determined from the cash flows from assets formula where cash flow from assets is the operating cash flow minus net capital spending and net change in working capital

cash flow from assets=operating cash flow-net capital spending+ net increase in working capital

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders

Cash Flow to Creditors = Interest Expense - Net New Long-term Debt

Cash Flow to Creditors=$200,000-($3,900,000-$2,200,000)

cash flow to creditors=$200,000-$1700,000

cash flow to creditors=-$1,500,000

Cash Flow to Stockholders = Dividends - Net New Equity

cash flow to stockholders=$610,000-($905,000+$8,400,000-$710,000-$6,400,000)

cash flow to stockholders=-$1,585,000

Cash Flow from Assets =-$1,500,000-$1,585,000

Cash Flow from Assets =-$3,085,000

operating cash flow=unknown(assume it is x)

net capital spending=$850,000

net increase in working capital=$155,000

-$3,085,000=x-$850,00-$155,000

x=-$3,085,000+$850,000+$155,000

x=OCF=-$2,219,500

Find out more about OCF on:brainly.com/question/14127626

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