Question

In: Finance

2. Could a company’s cash flow to stockholders be negative in a given year? Explain how...

2. Could a company’s cash flow to stockholders be negative in a given year? Explain how this might come about.

  1. Could a company’s cash flow to creditors be negative in a given year? Explain how this might come about.
  1. Olive Corp. has current assets of $15,000, net fixed assets of $13,500, current liabilities of $5,000, and long-term debt of $20,300.

a. What is the value of total assets account in the balance sheet?

b. What is the value of total liabilities account in the balance sheet?

c. What is the value shareholder’ equity account in the balance sheet?

  1. How much is net working capital?
  1. Answer the following True/False questions:
  1. Liquid assets tend to earn a high rate of return.

=> True/False

  1. Liquid assets are defined as assets that can be sold quickly regardless of the price obtained.

=> True/False

PLEASE SHOW HOW YOU GOT ANSWERS!!

Solutions

Expert Solution

2. Cash flow to stockholders can be negative in any given year :

The formula for the cash flow to stock holders is :

Dividend paid - new equity raised.

When the amount paid to the stockholders as dividend as less than the amount raised as new equity, then the cash flow to stockholders is negative.

3. Cash flow to creditors = Interest paid – Net new borrowing

If a company borrows more than it pays in interest and principal, its cash flow to creditors will be negative.

4. the value for total assets = current assets + fixed assets

= $15,000 + $13,500

= $28,500

b total liabilities = current liabilities + long term debt

= $5000 + $20,300

=$25,300

c. Equity = Total assets - total liabilities

= $28,500 - $25,300

= $3,200

d. net working capital:

current assets - current liabilities

=$15,000 - $5000

= $10,000

5. a . TRUE STATEMENT . liquid assets earn a high rate of return. Any asset that can be sold within the next year is considered liquid.

b. Liquid assets can be converted into cash regardless of the price obtained. Any asset that can be sold within the next year is considered liquid.

TRUE STATEMNENT.


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