STATEMENT OF CASH FLOWS You have just been hired as a financial analyst for Basel Industries. Unfortunately, company headquarters (where all of the firm's records are kept) has been destroyed by fire. So, your first job will be to recreate the firm's cash flow statement for the year just ended. The firm had $100,000 in the bank at the end of the prior year and its working capital accounts except cash remained constant during the year. It earned $5 million in net income during the year but paid $750,000 in dividends to common shareholders. Throughout the year, the firm purchased $5.5 million of machinery that was needed for a new project. You have just spoken to the firm's accountants and learned that annual depreciation expense for the year is $450,000; however, the purchase price for the machinery represents additions to property, plant, and equipment before depreciation. Finally, you have determined that the only financing done by the firm was to issue long- term debt of $1 million at a 6% interest rate. What was the firm's end-of-year cash balance? Recreate the firm's cash flow statement to arrive at your answer.
STATEMENT OF CASH FLOWS You have just been hired as a financial analyst for Basel Industries. Unfortunately, company headquarters (where all of the firm's records are kept) has been destroyed by fire. So, your first job will be to recreate the firm's cash flow statement for the year just ended. The firm had $100,000 in the bank at the end of the prior year and its working capital accounts except cash remained constant during the year. It earned $5 million in net income during the year but paid $750,000 in dividends to common shareholders. Throughout the year, the firm purchased $5.5 million of machinery that was needed for a new project. You have just spoken to the firm's accountants and learned that annual depreciation expense for the year is $450,000; however, the purchase price for the machinery represents additions to property, plant, and equipment before depreciation. Finally, you have determined that the only financing done by the firm was to issue long- term debt of $1 million at a 6% interest rate. What was the firm's end-of-year cash balance? Recreate the firm's cash flow statement to arrive at your answer.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:STATEMENT OF CASH FLOWS You have just been hired as a financial analyst for Basel
Industries. Unfortunately, company headquarters (where all of the firm's records are kept)
has been destroyed by fire. So, your first job will be to recreate the firm's cash flow
statement for the year just ended. The firm had $100,000 in the bank at the end of the prior
year and its working capital accounts except cash remained constant during the year. It
earned $5 million in net income during the year but paid $750,000 in dividends to common
shareholders. Throughout the year, the firm purchased $5.5 million of machinery that was
needed for a new project. You have just spoken to the firm's accountants and learned that
annual depreciation expense for the year is $450,000; however, the purchase price for the
machinery represents additions to property, plant, and equipment before depreciation.
Finally, you have determined that the only financing done by the firm was to issue long-
term debt of $1 million at a 6% interest rate. What was the firm's end-of-year cash balance?
Recreate the firm's cash flow statement to arrive at your answer.
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