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
.You have recently been hired to improve the performance of MJ Cor., which has been experiencing a severe cash
shortage. As one part of your analysis, you want to determine the firm's cash conversion cycle. Data gathered were
as follows:
Current inventory
: P120,000
Annual sales
: P600,000
Accounts receivable
: P157,808
: P25,000
: P365,000
: net 30 days
: net 50 days.
Accounts payable
Total annual purchases
Purchases credit terms
Receivables credit terms
Using 365-day year, the estimated current cash conversion cycle (in days) is?
Please answer all the questions i have mentioned below : -
Read the section on the Cash Conversion Cycle (or “Cash Cycle”) and use your own words to answer the questions:
Explain cash conversion cycle and why it is important to companies?
Is it possible that a company has a negative cash cycle? Is it a good thing or a bad thing?
2. A company has days of inventory 80 days, days receivable of 30 days, and days payable of 90 days. Calculate the company’s funding gap.
3. Use your own words to explain the following:
Weighted Average Cost of Capital (WACC): formula and what it measures
Cost of Debt: formula and what it measures
Capital Asset Pricing Model (CAPM): formula and what it measures
Baumol Model and Miller-Orr Model
1. The management of the Book Warehouse Company wishes to apply the Miller-Orr model to manage its cash investment. They have determined that the cost of either investing in or selling marketable securities is $100. By looking at Book Warehouse’s past cash needs, they have determined that the variance of daily cash flows is $20,000. Book Warehouse’s opportunity cost of cash, per day, is estimated to be 0.03%. Based on experience, management has determined that the cash balance should never fall below $10,000. Calculate the lower limit, the return point, and the upper limit based on the Miller-Orr model of cash management.
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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