Part 1

Question

During 2010, Raines Umbrella Corp. had sales of $850,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $610,000, $110,000 and $140,000, respectively. In addition, the company has an interest expense of $85,000 and a tax rate of 35 percent. (Ignore any tax loss carry-back or carry-forward provisions.)

a. What is Raines’ net income for 2010?
b. What is its operating cash flow?
c. Explain your results in (a) and (b)?
Part 2
Suppose Raines Umbrella Corp. paid out $63,000 in cash dividends. Is this possible? If spending on net fixed assets and net working capital was zero, and if no new stock was issued during the year, what do you know about the firm’s long-term debt account?

Answer 1

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