Let's break down the problem step-by-step, using the data given and the relevant formulas. --- ### **Given Data** - **Sales (Revenue):** $730,000 - **Cost of Goods Sold (COGS):** $500,000 - **Administrative and Selling Expenses:** $125,000 - **Depreciation Expense:** $180,000 - **Interest Expense:** $56,000 - **Tax Rate:** 21% - **Cash Dividends Paid:** $64,000 - **Net Capital Spending:** $0 - **Change in Net Working Capital:** $0 - **No New Stock Issued** We are to **find the net new long-term debt**. --- ### **Step 1: Calculate Earnings Before Interest and Taxes (EBIT)** \[ \text{EBIT} = \text{Sales} - \text{COGS} - \text{Administrative and Selling Expenses} - \text{Depreciation} \] \[ \text{EBIT} = 730,000 - 500,000 - 125,000 - 180,000 \] \[ \text{EBIT} = 730,000 - 805,000 \] \[ \text{EBIT} = -75,000 \] --- ### **Step 2: Calculate Taxable Income** \[ \text{Taxable Income} = \text{EBIT} - \text{Interest Expense} \] \[ \text{Taxable Income} = -75,000 - 56,000 = -131,000 \] --- ### **Step 3: Calculate Taxes** Since taxable income is negative, the company pays **no taxes**: \[ \text{Taxes} = 0 \] --- ### **Step 4: Calculate Net Income** \[ \text{Net Income} = \text{Taxable Income} - \text{Taxes} \] \[ \text{Net Income} = -131,000 - 0 = -131,000 \] --- ### **Step 5: Calculate Operating Cash Flow (OCF)** \[ \text{Operating Cash Flow} = \text{EBIT} + \text{Depreciation} - \text{Taxes} \] \[ \text{Operating Cash Flow} = -75,000 + 180,000 - 0 = 105,000 \] --- ### **Step 6: Calculate Cash Flow to Creditors (CFC)** \[ \text{Cash Flow to Creditors} = \text{Interest Paid} - \text{Net New Borrowing} \] But we want to **find Net New Borrowing** (Net New Long-Term Debt). First, let's find **Cash Flow from Assets (CFA)**: \[ \text{CFA} = \text{OCF} - \text{Net Capital Spending} - \text{Change in NWC} \] \[ \text{CFA} = 105,000 - 0 - 0 = 105,000 \] Cash Flow from Assets is distributed to **creditors and shareholders**: \[ \text{CFA} = \text{Cash Flow to Creditors} + \text{Cash Flow to Stockholders} \] --- ### **Step 7: Calculate Cash Flow to Stockholders (CFS)** \[ \text{Cash Flow to Stockholders} = \text{Dividends Paid} - \text{Net New Equity Raised} \] Given: No new stock issued, so Net New Equity Raised = 0. \[ \text{Cash Flow to Stockholders} = 64,000 - 0 = 64,000 \] --- ### **Step 8: Set Up the Equation for Net New Long-Term Debt** Let \( X \) = Net New Long-Term Debt \[ \text{CFA} = (\text{Interest Paid} - X) + \text{Dividends Paid} \] \[ 105,000 = (56,000 - X) + 64,000 \] \[ 105,000 = 120,000 - X \] \[ X = 120,000 - 105,000 \] \[ X = 15,000 \] --- ### **Step 9: Interpretation** - If **Net New Long-Term Debt** is positive, the company **borrowed more** this year. - If negative, the company **repaid debt**. Here, the answer is **$15,000**. --- ## **Final Answer** \[ \boxed{15,000} \] **Net new long-term debt for Raines Umbrella Corporation during 2024 is $15,000.** --- ### **Summary Table** | Step | Value | Formula/Explanation | |------|----------------|--------------------------------------------------| | EBIT | \(-75,000\) | \(730,000 - 500,000 - 125,000 - 180,000\) | | Taxable Income | \(-131,000\) | \(-75,000 - 56,000\) | | Taxes | \(0\) | No taxes on negative taxable income | | Net Income | \(-131,000\) | \(-131,000 - 0\) | | OCF | \(105,000\) | \(-75,000 + 180,000 - 0\) | | CFA | \(105,000\) | \(105,000 - 0 - 0\) | | CFS | \(64,000\) | \(64,000 - 0\) | | CFC | \(105,000 - 64,000 = 41,000\) | | | Net New Debt | \(15,000\) | \(105,000 = (56,000 - X) + 64,000 \Rightarrow X=15,000\) | If you have any questions, let me know!