PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 29, Problem 1PS
Sources and uses of cash State whether each of the following events is a source or use of cash, or neither.
- a. An automobile manufacturer increases production in response to a
forecasted increase in demand. Unfortunately, the demand does not increase. - b. Competition forces the firm to give customers more time to pay for their purchases.
- c. Rising commodity prices increase the value of raw material inventories by 20%.
- d. The firm sell s a parcel of land for $100,000. The land was purchased five years earlier for $200,000.
- e. The firm repurchases its own common stock.
- f. The firm doubles its quarterly dividend.
- g. The firm issues $1 million of long-term debt and uses the proceeds to repay a short-term bank loan.
Expert Solution & Answer
Summary Introduction
To determine: Whether each events is a source or application of cash or neither.
Explanation of Solution
Following table showing whether each events is a source or application of cash or neither:
Item name | Source or application | Reason |
a | Application | Inventory increases and cash decreases(once supplier has been settled) |
b | Application | Accounts receivable will raise while cash balance declines. |
c | No change | Stock is recorded at cost and not in the market value. |
d | Source | Long term asset will decrease, cash will increase and equity declines( by the post-tax capital loss) |
e | Application | The cash will decrease while the treasury stock balance increases. |
f | Application | Cash balance will decrease if the retrained earnings balance decrease. |
g | No change | Long-term debt and short-term debt are in inverse relationship. That is if the long term debt increases the short term debt will get decrease. |
Table (1)
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Students have asked these similar questions
American Products is concerned about managing cash efficiently. On average, inventories have an age of 90 days, and accounts receivable are collected in 60 days. Accounts payable are paid approximately 30 days after they arise. The firm’s operating-cycle investments are $30 million per year.Cost of goods sold are $20 million, and purchases are $15 million.
a. Calculate the firm’s operating cycle.
b. Calculate the firm’s cash conversion cycle.
c. Calculate the amount of resources needed to support the firm’s cash conversion cycle.
d. Discuss how management might be able to reduce the cash conversion cycle.
sources and Uses of Cash. How would each ofthe following events would affect the firm's balancesheet. State whether each change is a source or useof cash. (LO3)a.An automobile manufacturer increases produc-tion in response to a forecast increase in demand.Unfortunately, the demand does not increase.b.Competition forces the firm to give customersmore time to pay for their purchases.C.The firm sells a parcel (area) of land for $100,000.The land was purchased 5 years earlier for$200,000.d.The firm repurchases its own common stock.e.The firm pays its quarterly dividend.f. The firm issues $1 million of long-term debt anduses the proceeds to repay a short-term bank loan.
You have recently been hired to improve the performance of Multiplex Corporation, which has been experiencing a severe cash shortage. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year,(a) what is your estimate of the firm’s current cash conversion cycle?
Current inventory =
$241,000.00
• Annual sales =
$1,200,000.00
• Accounts receivable =
$300,000.00
• Accounts payable =
$245,000.00
• Total annual purchases =
$600,000.00
• Purchases credit terms: net 30 days.
• Receivables credit terms: net 50 days.
Chapter 29 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 29 - Sources and uses of cash State whether each of the...Ch. 29 - Sources and uses of cash Table 29. 11 shows...Ch. 29 - Prob. 3PSCh. 29 - Sources and uses of cash and working capital...Ch. 29 - Prob. 5PSCh. 29 - Prob. 6PSCh. 29 - Cash cycle A firm is considering several policy...Ch. 29 - Collections on receivables Here is a forecast of...Ch. 29 - Collections on receivables If a firm pays its...Ch. 29 - Forecasts of payables Dynamic Futon forecasts the...
Ch. 29 - Cash budget Table 29.13 lists data from the budget...Ch. 29 - Short-term financial plans a. Paymore places...Ch. 29 - Short-term financial plans Which items in Table...Ch. 29 - Short-term financial plans Work out a short-term...Ch. 29 - Prob. 16PSCh. 29 - Prob. 17PSCh. 29 - Long-term financial plans Corporate financial...Ch. 29 - Prob. 19PSCh. 29 - Prob. 20PSCh. 29 - Long-term financial plans Construct a new model...Ch. 29 - Long-term financial plans a. Use the Dynamic...Ch. 29 - Long-term financial plans Table 29.15 summarizes...Ch. 29 - Long-term financial plans Abbreviated financial...Ch. 29 - Prob. 25PSCh. 29 - Forecast growth rate What is the maximum possible...Ch. 29 - Forecast growth rate a. What is the internal...Ch. 29 - Forecast growth rate Bio-Plasma Corp. is growing...Ch. 29 - Long-term plans Table 29.18 shows the 2019...
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