Joynen Baldevarona Case study No.

Problem:

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 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.

Cash at the beginning of the year $100,000.00

Net Income $5,000,000.00
Common Dividends $750,000.00
Machinery Equipment Purchases $5,500,000.00
Depreciation Expense $450,000.00
Long-Term Debt $1,000,000.00
Interest Rate on Long-Term Debt 6%

I. Operating Activities
Net Income $5,000,000.00
Depreciation Expense $450,000.00
Net Cash Provided by (used in) operations $5,450,000.00

II. Long Term Investing Activities

Machinery Equipment Purchases -$5,500,000.00
Net cash used in investing activities -$5,500,000.00

III. Financing Activities

Issuance of long-term debt $1,000,000.00
Payment of common dividends -$750,000.00
Net cash provided by financing activities $250,000.00

IV. Summary
Net increase(decrease) in cash $200,000.00
Cash at beginning of the year $100,000.00
Cash at end of the year $300,000.00