Lansing Inc. has decided to expand. During the last year the company borrowed $5 million for a term of 30 years to finance a new factory, and sold 60,000 shares of stock at $51 per share to pay for new equipment. Lansing also made a payment of $500,000 on an old long-term loan, of which $175,000 was interest. (Hint: ignore the interest paid!) Finally, the firm paid dividends of $2.50 per share on 700,000 shares of outstanding common stock. Calculate the net figure for the Cash from Financing Activities for Lansing's statement of cash flows.
To calculate the net figure for the Cash from Financing Activities on Lansing's statement of cash flows, we need to consider all the financing-related transactions that occurred.
Let's break down the given information:
1. Borrowed $5 million for a term of 30 years to finance a new factory: This represents proceeds from a long-term loan. So we add $5 million to the net figure.
2. Sold 60,000 shares of stock at $51 per share to pay for new equipment: This represents proceeds from the issuance of common stock. So we add the value of the shares sold, which is 60,000 × $51 = $3,060,000, to the net figure.
3. Made a payment of $500,000 on an old long-term loan: This represents a repayment of a long-term loan. So we subtract $500,000 from the net figure.
4. Paid dividends of $2.50 per share on 700,000 shares of outstanding common stock: This represents cash outflow due to dividends. So we subtract the dividends paid, which is 700,000 × $2.50 = $1,750,000, from the net figure.
Now let's calculate the net figure:
Net figure = ($5,000,000 + $3,060,000) - $500,000 - $1,750,000
Net figure = $8,060,000 - $500,000 - $1,750,000
Net figure = $5,810,000
Therefore, the net figure for the Cash from Financing Activities on Lansing's statement of cash flows is $5,810,000.