Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / 1
1.Type your answer in the box. A firm has total receipts of $16,000, $20,000, & $18,000 and total payments of $12,000, $15,000, & $12,500, in January, February, & March, respectively. The firm's net cash flow for January is (round to the nearest dollar and include the dollar sign and commas, as appropriate) Do you know the answer?
2.A bank has a SME customer who is over-trading. While its sales and profit growth are impressively high, the firm's leverage and liquidity have been consistently eroded and have now reached a danger zone. Generous dividends continue to be paid. The bank is unwilling to extend more credit. The best solution(s) going forward would be: * Improve profitability o Improve asset efficiency by liquidating surplus assets (if any) Cut back dividends Reduce growth rate or invest growth equity capital O All of the above
3. Due to poor financial management (capex funded by short term debt and operating cash flow), a firm finds itself in a liquidity bind. There is no cash nor further room on the short-term line of credit to pay over-due suppliers who are threatening legal action. Profitability is very good and leverage (vs. peers) is quite modest. Despite the mistake, the bank has confidence in the operational skills of management and likes the industry's market prospects. A sensible solution to the problem is: * Sell assets to raise cash to pay ST creditors Negotiate special terms from suppliers seeking payment deferrals Re-finance fix assets with a term loan using proceeds to boost liquidity Improve A/R collections to generate more cash
1.Net cashflow = total receipts - total payments
= 16,000 - 12,000
= $4,000
2.Correct answer is option 2 i.e. improve asset efficiency by liquidating surplus asset.
This will bring sudden Cash to firm and increase liquidity.
Other options are not correct because
1-Profit is already high and it is not solving liquidity problem
3- Cutting dividend will have effect on shareholder yield
4-all of above is not correct.
3.The company in the current senerio can use a combination of tecniques to meet its liquidity crunch like:
a. Option B: The company can negotiate the special terms of payments to creditors. Like it can negotiate a plan whereby they can take the approval of the creditor and can ask them to convert the payments due to a short term loan with the interest payments.
b. Option C: Since the capex wher short term financed and the cash flows were distorded since the same were taken on a short term loan. Thus we can take a new loan from the banks on the Capex as refinancing way and can us=tilise those assets as an means to met the current financial crunch.
c. Option D: The company can also improve its collection days and can reduce the debt recovery period. Thus can generate cash flow in the short term.
Option A is not recomdable since the capital assets are an intergral part and are used to generate revenue for an organisation. thus the organisation should nit focus on sellings its fixed assets.
