| FIN641 A & B Homework Assignment 1 |
- List and briefly describe the three basic areas addressed by a financial manager.
- One thing lenders sometimes require when loaning money to a small corporation is an assignment of the common stock as collateral on the loan. Then, if the business fails to repay its loan, the ownership of the stock certificates can be transferred directly to the lender. Why might a lender want such an assignment? What advantage of the corporate form of organization comes into play here?
For questions 3, 4, 5, & 10:
| New Town Industries | ||
| Tax rate 35% | 2015 | 2014 |
| Revenues | $42,629 | $37,911 |
| Cost of goods sold | 23,704 | 24,832 |
| Interest | 1,230 | 1,584 |
| Dividends | 1,200 | 600 |
| Depreciation | 2,609 | 2,814 |
| Administrative expenses | 7,040 | 6,820 |
| Cash | 3,671 | 2,969 |
| Inventory | 3,968 | 4,503 |
| Accounts payable | 2,325 | 3,760 |
| Long-term debt | 19,105 | 25,900 |
| Accounts receivable | 4,601 | 5,318 |
| Common stock | 22,600 | 19,800 |
| Net fixed assets | 41,260 | 42,110 |
- What is the net working capital for 2015?
- What is New Town’s net capital spending for 2015?
- What is net new borrowing for 2015?
- Define liquidity and explain what a firm would need to do to ensure all of the current assets displayed on its balance sheet are liquid.
- Depreciation is classified as a noncash item because no cash is spent when depreciation is recorded. Why are expenses that have been accrued, but not yet paid, not also considered to be noncash items and therefore excluded from operating cash flow just as depreciation is excluded?
- Interpret, in words, what cash flow of the firm represents by discussing operating cash flow, changes in net working capital, and additions to fixed assets.
- Why is cash flow management important?
- What is the New Town’s cash flow of the firm for 2015?