Solutions to Chapter 19
Short-Term Financial Planning
1. Cash Net Working Capital
a. $2 million decrease $2 million decrease
b. $2,500 increase Unchanged
2.
Sources
Issued long-term debt $ 300
Sale of fixed assets 600
Cash from operations:
Uses
Additions to inventory $ 120
Increase in accounts receivable 150
3. a. long-term financing, total capital requirement, marketable securities
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4.
a. Inventories of raw materials, work in process, and finished goods increase, and cash
b. Accounts receivable increase (use of cash).
5. Consider a simplified balance sheet before any changes as follows:
Assets Liabilities
Cash $1,000 Accounts Payable $1,000
Equity
a. Assuming the other $500 goes into cash, the new balance sheet looks as follows:
Assets Liabilities
Cash $1,500 Accounts Payable $500
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b. The new balance sheet looks as follows:
Assets Liabilities
Cash $1,000 Accounts Payable $200
Marketable securities $1,200 Short-term Loans $1,000
Equity
6. Sources of cash:
Sold marketable securities $10.0
Increased bank loans 5.0
Increased accounts payable 35.0
Increased long-term debt 35.0
Uses of cash:
Increased inventories $33.0
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7. The order is 0.75 times the following quarter’s sales forecast:
Quarter Order
1 0.75 $360 = $270
8. Since the first quarter’s sales forecast was $372, orders placed during the fourth quarter of
the preceding year would have been 0.75 $372 = $279.
Quarter Payment*
1 (1/3 $279) + (2/3 $270) = $273
2 (1/3 $270) + (2/3 $252) = $258
9. Quarter Collections*
1 (2/3 $336) + (1/3 $372) = $348
2 (2/3 $372) + (1/3 $360) = $368
10.
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Est time: 06–10
Financial planning and forecasting
11.
Est time: 06–10
Short-term financial plan
12.
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13. a.
..
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…
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..
Any depreciation of the new warehouse during the year will increase cash (by the
amount of the additional depreciation tax shield); increase accumulated
On the statement of cash flows, any increase in depreciation will reduce net
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….
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