Question

1. Could a company’s net capital spending be negative in a given year? Explain how this might come about.

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

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

4. 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?

4. How much is net working capital?

5. Answer the following True/False questions:

1. Liquid assets tend to earn a high rate of return.

=> True/False

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

=> True/False

PLEASE SHOW HOW YOU GOT ANSWERS!!

Answer 1

Note: Since you've posted multiple questions, I've answered only the first question. Please repost each question seperately or specifically indicate the questions with which you need help.

In order to determine if a company's net capital spending can turn negative, we start by looking at how we determine a company's net capital spending.

Net Capital Spending = Ending Net Fixed Assets - Beginning Net Fixed Assets + Depreciation

Let's consider two cases with two different sets of numbers and compute Net Capital Spending.

	Company A (values in millions)	Company B (values in millions)
Ending Net Fixed Assets (I)	60	60
Beginning Net Fixed Assets (II)	45	75
Depreciation (III)	5	5
Net Capital Spending = I - II + III	60-45+5 = 20	60-75+5 = -10
Interpretation	In this case the net capital spending is 20 million. This means that Company A added or bought more fixed assets in the given year. Hence net capital spending is positive.	Company B has a net capital spending of -10 million. This implies that the company sold off more fixed assets than it added in the given year. Hence net capital spending is negative.

Hence from the table above, we conclude that net capital spending can be negative if the value of ending fixed assets and depreciation is less than beginning fixed assets.