Question
Red Barchetta Company paid $28,040 in dividends and $29,067 in interest over the past year. During the year, net working capital increased from $13,794 to $18,519. The company purchased $43,320 in fixed assets and had a depreciation expense of $17,345. During the year, the company issued $25,300 in new equity and paid off $21,420 in long-term debt. What was the company's cash flow from assets?
Answers
GPT-4o mini
To calculate the cash flow from assets for Red Barchetta Company, we can use the following formula:
\[
\text{Cash Flow from Assets} = \text{Operating Cash Flow} - \text{Capital Expenditures}
\]
**Step 1: Calculate Operating Cash Flow (OCF).**
The formula to calculate OCF is:
\[
\text{Operating Cash Flow} = \text{Net Income} + \text{Depreciation} + \text{Changes in Working Capital}
\]
In this case, we don't have the net income directly, but we can deduce it using the information about dividends. We know that dividends paid are typically from distributed net income, but also need to consider the changes in working capital.
First, let's calculate the change in net working capital (NWC):
\[
\text{Change in NWC} = \text{Ending NWC} - \text{Beginning NWC}
\]
\[
\text{Change in NWC} = 18,519 - 13,794 = 4,725
\]
Now we can summarize the cash flow components. We do not have explicit details for net income, so we will assume that dividends paid equals the portion of net income distributed:
**Step 2: Cash flow calculations from given details.**
Since we know:
- **Dividends Paid:** $28,040
- **Interest Paid:** $29,067
- **Depreciation Expense:** $17,345
- **Increase in Working Capital:** $4,725
- **Capital Expenditures (purchases of fixed assets):** $43,320
We need to calculate the net income considering dividends and interest roles, but this becomes more complex because typically those are not representative of direct net income without further context.
For simplifying matters and concentrating on the cash available for assets, we proceed with:
\[
\text{OCF} = \text{Net Income} + \text{Depreciation} - \text{Increase in NWC}\text{ (as a cash outflow)}
\]
Using a simple assumption to focus on cash (using Disposable Net Income):
Let’s approximate:
\[
\text{OCF} = -(\text{Dividends + Interest}) + \text{Depreciation} - \text{Increase in NWC}
\]
\[
OCF = - (28,040 + 29,067) + 17,345 - 4,725
\]
This results in:
\[
OCF ≈ -57,107 + 17,345 - 4,725
\]
\[
OCF ≈ -57,107 + 12,620 = -44,487
\]
This yields a negative operating cash flow which indicates expenditures exceeded income.
**Step 3: Now we find **Cash Flow from Assets***
\[
\text{Cash Flow from Assets} = \text{Operating Cash Flow} - \text{Capital Expenditures}
\]
Plugging the OCF into this formula:
\[
\text{Cash Flow from Assets} = -44,487 - 43,320
\]
\[
= -87,807
\]
Thus, the final cash flow from assets calculation gives:
\[
\text{Cash Flow from Assets} = -87,807
\]
Indicating that Red Barchetta Company had a cash outflow from its asset management over the year.
**Final Answer: Cash Flow from Assets = \(-87,807\)**.
\[
\text{Cash Flow from Assets} = \text{Operating Cash Flow} - \text{Capital Expenditures}
\]
**Step 1: Calculate Operating Cash Flow (OCF).**
The formula to calculate OCF is:
\[
\text{Operating Cash Flow} = \text{Net Income} + \text{Depreciation} + \text{Changes in Working Capital}
\]
In this case, we don't have the net income directly, but we can deduce it using the information about dividends. We know that dividends paid are typically from distributed net income, but also need to consider the changes in working capital.
First, let's calculate the change in net working capital (NWC):
\[
\text{Change in NWC} = \text{Ending NWC} - \text{Beginning NWC}
\]
\[
\text{Change in NWC} = 18,519 - 13,794 = 4,725
\]
Now we can summarize the cash flow components. We do not have explicit details for net income, so we will assume that dividends paid equals the portion of net income distributed:
**Step 2: Cash flow calculations from given details.**
Since we know:
- **Dividends Paid:** $28,040
- **Interest Paid:** $29,067
- **Depreciation Expense:** $17,345
- **Increase in Working Capital:** $4,725
- **Capital Expenditures (purchases of fixed assets):** $43,320
We need to calculate the net income considering dividends and interest roles, but this becomes more complex because typically those are not representative of direct net income without further context.
For simplifying matters and concentrating on the cash available for assets, we proceed with:
\[
\text{OCF} = \text{Net Income} + \text{Depreciation} - \text{Increase in NWC}\text{ (as a cash outflow)}
\]
Using a simple assumption to focus on cash (using Disposable Net Income):
Let’s approximate:
\[
\text{OCF} = -(\text{Dividends + Interest}) + \text{Depreciation} - \text{Increase in NWC}
\]
\[
OCF = - (28,040 + 29,067) + 17,345 - 4,725
\]
This results in:
\[
OCF ≈ -57,107 + 17,345 - 4,725
\]
\[
OCF ≈ -57,107 + 12,620 = -44,487
\]
This yields a negative operating cash flow which indicates expenditures exceeded income.
**Step 3: Now we find **Cash Flow from Assets***
\[
\text{Cash Flow from Assets} = \text{Operating Cash Flow} - \text{Capital Expenditures}
\]
Plugging the OCF into this formula:
\[
\text{Cash Flow from Assets} = -44,487 - 43,320
\]
\[
= -87,807
\]
Thus, the final cash flow from assets calculation gives:
\[
\text{Cash Flow from Assets} = -87,807
\]
Indicating that Red Barchetta Company had a cash outflow from its asset management over the year.
**Final Answer: Cash Flow from Assets = \(-87,807\)**.