"assume a company has sales of $423,800, production costs of $297,400, other expenses of $18,500, depreciation expense of $36,300, interest expense of $2,100, taxes of $23,600, and dividends of $12,000. in addition, you're told that during the year the firm issued $4,500 in new equity and redeemed $6,500 in outstanding long-term debt. if net fixed assets increased by $7,400 during the year, what was the addition to net working capital? "

Answer : Net additions to working capital $24,500.

We follow these steps to arrive at the

We can arrive at the answer by using the Cash flow identity:

Cash flow from assets = Cash flow to creditors + Cash flow to shareholders (1)

Now,

Cash Flow from Assets = Operating Cash Flow - Net Capital Spending -        Change in Net Working Capital

Substituting the above in (1) above we get,

 (2)

Now, we can calculate Operating Cash Flow as follows:

Substituting the values from the question in the formula above we get,

Next we compute net capital spending with the following formula

Next, we'll calculate cash flows to creditors.

Since the company has redeemed debt worth 6500, it's net borrowing has decreased by 6500 since the beginning of the year. Hence, we've taken it as a negative number.

Next, we calculate cash flow to shareholders

Substituting all the computed values in (2) we get,

1. c

2. b

3. a

4. c

5. a

6. b

7. c

8. c

9.b

10. d

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