In Problem 17, suppose Raines Umbrella Corp. paid out $128,000 in cash dividends. Is this possible? If spending on net fixed assets and net working capital was zero, and if no new stock was issued during the year, what do you know about the firm’s long-term debt account?

Data in Problem 17,

During 2021, Raines Umbrella Corp. had sales of $865,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $535,000, $125,000, and $170,000, respectively. In addition, the company had an interest expense of $90,000 and a tax rate of 25 percent. (Ignore any tax loss carryforward provisions and assume interest expense is fully deductible.)

a. What is the company’s net income for 2021?

b. What is its operating cash flow?

c. Explain your results in parts (a) and (b).