At the beginning of the year, long-term debt of a firm is $280 and total debt is $325. At the end of the year, long-term debt is $255 and total debt is $335. The interest paid is $21. What is the amount of the cash flow to creditors?




To find the cash flow to creditors, we use the following formula:

\[
\text{Cash Flow to Creditors} = \text{Interest Paid} - \text{Net New Borrowing}
\]

Where:
- **Interest Paid** is given as $21.
- **Net New Borrowing** is the difference in long-term debt from the beginning to the end of the year.

### Step 1: Calculate Net New Borrowing
\[
\text{Net New Borrowing} = \text{Long-Term Debt at End of Year} - \text{Long-Term Debt at Beginning of Year}
\]
\[
\text{Net New Borrowing} = 255 - 280 = -25
\]
The negative sign indicates that the firm has reduced its long-term debt by $25 during the year.

### Step 2: Calculate Cash Flow to Creditors
\[
\text{Cash Flow to Creditors} = \text{Interest Paid} - \text{Net New Borrowing}
\]
\[
\text{Cash Flow to Creditors} = 21 - (-25) = 21 + 25 = 46
\]

### Final Answer:
The cash flow to creditors is **$46**.

Would you like a detailed explanation of any step, or do you have any questions?

Here are 5 related questions you might find interesting:
1. How do changes in short-term debt affect the cash flow to creditors?
2. What is the impact of a firm's interest rate on cash flow to creditors?
3. Can cash flow to creditors be negative? Under what circumstances?
4. How does total debt differ from long-term debt in financial analysis?
5. What are some strategies a firm might use to manage its debt levels?

**Tip:** Always keep track of both long-term and short-term debts when analyzing a company's financial health.

At the beginning of the year, long-term debt of a firm is $280 and total debt is $325. At the end of the year, long-term debt is $255 and total debt is $335. The interest paid is $21. What is the amount of the cash flow to creditors?

Learn how to calculate the cash flow to creditors using the difference in long-term debt and interest paid. This example provides a step-by-step solution for understanding cash flow analysis, a key concept in finance, suitable for Grades 11-12 and college-level students.

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