Question

Consider the following potential events that might have occurred to Global Conglomerate on December​ 30, 2015. For each​ one, indicate which line items in​ Global's balance sheet would be affected and by how much. Also indicate the change to​ Global's book value of equity.​ (In all​ cases, ignore any tax consequences for​ simplicity.)

a. Global used

$ 20$20

million of its available cash to repay

$ 20$20

million of its​ long-term debt.

b. A warehouse fire destroyed

$ 5$5

million worth of uninsured inventory.  

c. Global used

$ 5$5

million in cash and

$ 5$5

million in new​ long-term debt to purchase a

$ 10$10

million building.  

d. A large customer owing

$ 3$3

million for products it already received declared​ bankruptcy, leaving no possibility that Global would ever receive payment.

e.​ Global's engineers discover a new manufacturing process that will cut the cost of its flagship product by over

50 %50%.

f. A key competitor announces a radical new pricing policy that will drastically undercut​ Global's prices.

Answer 1