What was the firm's end-of-year cash balance? Recreate the firm's cash flow statement to arrive at your answer. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar, if necessary.
What was the firm's end-of-year cash balance? Recreate the firm's cash flow statement to arrive at your answer. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar, if necessary.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:You have just been hired as a financial analyst for Barrington 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 $5.4
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 $440,000; 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 7% interest rate. The data has been
collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer
the question below.
Open spreadsheet
What was the firm's end-of-year cash balance? Recreate the firm's cash flow statement to arrive at your answer.
Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to
the nearest dollar, if necessary.
$4
Expert Solution
Step 1
| Cash flow from operating activities | |
| Net Income | 5,000,000 |
| Depreciation | 440,000 |
| 5,440,000 | |
| Cash flow from investing activities | |
| Purchase of machinery | -5,400,000 |
| -5,400,000 | |
| Cash flow from financing activities | |
| New long term borrowings | 1,000,000 |
| dividend paid | -750,000 |
| 250,000 | |
| Net increase in cash | 290,000 |
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