During 2018, Raines Umbrella Corp. had sales of $720,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $498,000, $125,000, and $105,000, respectively. In addition, the company had an interest expense of $58,000 and a tax rate of 21 percent. (Ignore any tax loss carryforward provisions and assume interest expense is fully deductible.) Suppose the company paid out $62,000 in cash dividends. If net capital spending and net working capital was zero, and if no new stock was issued during the year, what is the net new long-term debt? (Do not round intermediate calculations.)

Question

Business

Ana Liu

30 January, 09:55

During 2018, Raines Umbrella Corp. had sales of $720,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $498,000, $125,000, and $105,000, respectively. In addition, the company had an interest expense of $58,000 and a tax rate of 21 percent. (Ignore any tax loss carryforward provisions and assume interest expense is fully deductible.) Suppose the company paid out $62,000 in cash dividends. If net capital spending and net working capital was zero, and if no new stock was issued during the year, what is the net new long-term debt? (Do not round intermediate calculations.)

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Jazlyn Orr · Answer 1

The company will need financing for 23,000

Explanation:

sales 720,000

COGS (498,000)

S&A expense (125.000)

EBDIT 97,000

Interest expense (58,000)

After Interest 39,000

Cash Dividends (62,000)

Total Cash needed 23,000

The company will need financing for 23,000

That's because the depreciation will not require a cash disbursement so, the company will not take debt to "pay" the depreciation.