Zigs Industries had the following operating results for 2011: sales = $28,560; cost of goods sold = $19,460; depreciation expense = $5,020; interest expense = $2,340; dividends paid = $1,150. At the beginning of the year, net fixed assets were $16,980, current assets were $5,800, and current liabilities were $3,280. At the end of the year, net fixed assets were $20,360, current assets were $7,360, and current liabilities were $3,900. The tax rate for 2011 was 30 percent

Zigs Industries had the following operating results for 2011: sales = $28,560; cost of goods sold = $19,460; depreciation expense = $5,020; interest expense = $2,340; dividends paid = $1,150. At the beginning of the year, net fixed assets were $16,980, current assets were $5,800, and current liabilities were $3,280. At the end of the year, net fixed assets were $20,360, current assets were $7,360, and current liabilities were $3,900. The tax rate for 2011 was 30 percent.

 

a.	What is net income for 2011?

 

Net income

$

 

b.	What is the operating cash flow for 2011?

 

Operating cash flow

$

c.	What is the capital spending for 2011?

 

Capital spending

$

d.	What is the change in net working capital for 2011?

 

Change in net working capital

$

e.	What is the cash flow from assets for 2011? (Negative amount should be indicated by a minus sign.)

Cash flow from assets

$

  


Explanation:

a.

Income Statement
Sales	$	28,560
Cost of goods sold		19,460
Depreciation		5,020
EBIT	$	4,080
Interest		2,340
Taxable income	$	1,740
Taxes (30%)		522
Net income	$	1,218

  
b.

OCF	= EBIT + Depreciation − Taxes
	= $4,080 + 5,020 − 522 = $8,578

c. 

Net capital spending	=NFAend − NFAbeg + Depreciation
	= $20,360 − 16,980 + 5,020 = $8,400

d.

Change in NWC	= NWCend − NWCbeg
	= (CAend − CLend) − (CAbeg − CLbeg)
	= ($7,360 − 3,900) − ($5,800 − 3,280)
	= $3,460 − 2,520 = $940

e.

CFA	= OCF − Change in NWC − Net capital spending
	= $8,578 − 940 − 8,400 = −$762

The cash flow from assets can be positive or negative, since it represents whether the firm raised funds or distributed funds on a net basis. In this problem, even though net income and OCF are positive, the firm invested heavily in both fixed assets and net working capital; it had to raise a net $762 in funds from its stockholders and creditors to make these investments.