Financing Cash Flow Calculation | CFA Level 1 Exam Preparation

Calculating Financing Cash Flow

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Question

A firm's financial data show:

Taxable income 1,500 -

Taxes paid 500 -

Non-cash operating expenses 780 -

Bonds retired 700 -

Loss on retired bonds 140 -

Then, the financing cash flow equals ________.

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A. B. C. D.

D

The firm's tax rate equals 500/1,500 = 30%. Note that loss on bonds retired is an extraordinary item under US GAAP and presented after-tax. Hence, the total cash spent on retiring bonds = 700 + 140/(1-0.3) = 900. So financing cash flow = -900.

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