Complete problems 19, 21, & 27 on pp. 50 – 53 of Foundations of Financial Management.

Identify whether each of the following items increases or decreases cash flow:

* Increase in accounts receivable - decrease

* Increase in notes payable - decreases

* Depreciation expense - increases

* Increase in investments - decreases

* Decrease in accounts payable - decrease

* Decrease in prepaid expenses - increases

* Increase in inventory - decreases

* Dividend payment - decreases

* Increase in accrued expenses - decreases

The Rogers Corporation has a gross profit of $880,000 and $360,000 in depreciation expenses.
The Evans Corporation also has $880,000 in gross profit, with $60,000 in depreciation expense.
Selling and administration expense is $120,000 for each company.

Given that the tax rate is 40 percent, compute the cash flow for both companies. Explain
the difference in cash flow between the two firms.

Rogers Corporation Evans Corporation

Earnings before depreciation and taxes | $880,000 | $880,000 |

Depreciation | ($360,000) | ($60,000) |

Selling and Administration expenses| ($120,000) | ($120,000) |

Earnings before taxes| $400,000 | $700,000 |

Taxes (40%) | ($160,000) | ($280,000) |

Earnings after taxes | $240,000 | $420,000 |

Cash Flow | $240,000 | $420,000 |

| | |

The difference between the two companies is $180,000.

Prepare a statement of cash flows for the Crosby Corporation. Follow the general procedures
indicated in Table 2-10 on page 38.

Crosby Corporation | |

Statement of Cash Flows | |

For the Year Ended December 31, 2008 | |

| | | | | | | | |

Operating activities: | | | | | |

| Net Income | | | | | 160,000 | |

| Add items not requiring an outlay of cash: | | | |

| | Depreciation | | | 150,000 | 150,000 | |

| Cash flow from operations | | | 310,000 | |

| | Increase in accounts receivable | | (50,000) | | |

| | Increase in inventory | | | (20,000) | | |

| | Decrease in prepaid expenses | | 20,000 | | |

| | Increase in accounts payable| | 190,000 | | |

| | Decrease in accrued expenses | | (20,000) | | |

| | Net change in non-cash working capital | | 120,000 | |

| | Cash provided by operating activities | | 430,000 | |

Investing activities: | | | | | |

| Decrease in investments | | 10,000 | | |

 | Increase in plant and equipment | | (400,000) | | |

| Cash used in investing activities | | | (390,000) | |

Financing activities: | | | | | |

| Increase in bonds payable | | 50,000 | | |

| Preferred stock dividends paid | | (10,000) | | |

| Common stock dividends paid | | (50,000) | | |

| Cash used in financing activities | | | (10,000) | |

Net increase (decrease) in cash | | | 30,000 | |

Cash, at beginning of year | | | | 70,000 | |

Cash, end of year | | | | 100,000 | |