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9 December, 03:03

The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed long-term debt of $6.3 million, and the 2018 balance sheet showed long-term debt of $6.5 million. The 2018 income statement showed an interest expense of $220,000. During 2018, the company had a cash flow to creditors of $20,000 and the cash flow to stockholders for the year was $75,000. Suppose you also know that the firm's net capital spending for 2018 was $1,480,000, and that the firm reduced its net working capital investment by $91,000. What was the firm's 2018 operating cash flow, or OCF? (Enter your answer in dollars, not millions of dollars

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  1. 9 December, 05:07
    0
    The firm's operating cash flow is $291000

    Explanation:

    Operating cash flow is arrived by using the format below:

    Net income after tax

    Add back dereciation and amortization

    Add and (deduct) Reduction in working capital (Increase in working capital)

    Add back interest expense on loans

    Add back tax expense for the year

    Then deduct:

    Actual interest paid

    Actual tax paid

    Using the proforma above, Kerber's Tennis Shop Inc. is shown as:

    Net income after tax+Interest expense (add) + reduction in net working capital (add) - increase in creditors' payment (minus)

    As a result, operating cash flow=$220000+$91000-$20000

    =$291000
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