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1.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: *

a Improve profitability

b Improve asset efficiency by liquidating surplus assets (if any)

c Cut back dividends

d Reduce growth rate or invest growth equity capital

e All of the above

8. 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: *

a Sell assets to raise cash to pay ST creditors

b Negotiate special terms from suppliers seeking payment deferrals

c Re-finance fix assets with a term loan using proceeds to boost liquidity

d Improve A/R collections to generate more cash.

2.Two items are omitted from each of the following summaries of balance sheet and income statement data for two corporations for the year 2019, Sheffield Corp. and Riverbed Enterprises. Determine the missing amounts. Sheffield Corp. Riverbed Enterprises Beginning of year: Total assets $128,040 $170,280 Total liabilities 112,200 (c) Total stockholders' equity (a) 99,000 End of year: Total assets Total liabilities Total stockholders' equity Changes during year in stockholders' equity: 211,200 158,400 52,800 237,600 66,000 171,600 Additional investment (b) 33,000 Dividends 31,680 (d) Total revenues 283,800 231,000 132,000 72,600 Total expenses.

3.Barry has just taken out a $200,000, 30-year, 5% mortgage. He has heard from friends that if he increases the size of his monthly payment by one-twelfth of the monthly payment, then he will be able to: (1) pay off the loan much earlier, and (2) save a bundle on interest costs. Barry is not convinced. Use the necessary calculations to help convince him that his friends are speaking the truth.