Respuesta :
We need to find net long-term debt added during the year.
Answer: The net long-term debt added during the year is $91,000.
We follow these steps to arrive at the answer:
We calculate Operating Cash flow first.
   Sales  2395000
less  COGS  -1430000
less  S&A   435500 Â
less  Depreciation   490500
    EBIT    39,000
Since Interest expense is greater than EBIT, Taxable income becomes negative.
The question directs us to ignore losses, so taxable income and therefore taxes are 0.
Now, we can calculate Operating Cash Flow or OCF
[tex]OCF= 529500 (39000 - 0 + 490500)[/tex]
We calculate cash flow from assets next
[tex]Cash Flow_{assets}= OCF - net capital spending - net investment in working capital[/tex]
Since net capital spending and net investment in working capital is zero,
[tex]Cash Flow_{assets} = OCF[/tex]
[tex]Cash Flow_{assets}= 529500[/tex]
Next we look at the cash flow entity which is:
[tex]Cash Flow_{assets} = Net cash flows to shareholders + Net cash flows to debt holders[/tex]
Since no new equity was issued, net cash flows to share holders is the total amount of dividends paid.
So,
[tex]529500 = 405000 + Net cash flow to debt holders[/tex]
[tex]124500 = Net cash flow to debt holders[/tex]
Now,
[tex]Net cash flow to debt holders = Interest paid - Net new debt
added[/tex]
[tex]124500= 215500- Net new debt added[/tex]
[tex]Net new debt added = 91000[/tex]