why
docx
keyboard_arrow_up
School
Moi University *
*We aren’t endorsed by this school
Course
100
Subject
Finance
Date
Nov 24, 2024
Type
docx
Pages
2
Uploaded by ProfessorZebraMaster753
a) Why-1:
Why does the Company need to be fixed?
Answer:
The Company needs to be fixed because it is facing financial issues.
b) Why-2:
Why is the Company facing financial issues?
Answer:
The Company is facing financial issues because Partha resorted to taking debenture loans at high
interest rates, putting a significant strain on the Company's finances.
c) Why-3:
Why did Partha take high-interest debenture loans, and why did it lead to his health problems?
Answer:
Partha took high-interest debenture loans due to the instability of the Company's finances. This
instability created stress and pressure, contributing to his health problems.
d) Why-4:
Why did the Company's finances become unstable in the first place?
Answer:
The Company's finances became unstable because it encountered cash flow problems when
borrowing additional money for unrelated projects. This extra debt weakened its financial
position.
e) Why-5:
Why did the Company take on more debt for unrelated projects?
Answer:
The Company took on more debt for unrelated projects, leading to a high net debt-to-EBITDA
ratio because it needed to support side initiatives. This further exacerbated its liquidity crisis and
financial difficulties.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Related Documents
Related Questions
Classify the following events as mostly systematic or mostly unsystematic. Is the distinction clear inevery case? Provide detailed explanation. a. Short-term interest rates increase unexpectedly.b. The interest rate a company pays on its short-term debt borrowing is increased by its bank.c. Oil prices unexpectedly decline.d. A manufacturer loses a multimillion-dollar product liability suit.
arrow_forward
If one of your firm's customers is "stretching" its accounts payable, this may be a nuisance but it does not represent a real financial cost to your firm as long as the customer periodically pays off its entire balance. O True O False
arrow_forward
Under standard accounting rules, it is possible for a company’s liabilities to exceed its assets. When this occurs,the owners’ equity is negative. Can this happen with market values? Why or why not?
arrow_forward
Which of the following is an example of “cookie jar” accounting?
a) A company creates cash reserves in profitable years so the money can be used to offset poor earnings in bad years to give the impression that the company is consistently achieving earnings goals and meeting investor expectations.
b)A company intentionally misapplies GAAP and, if caught, argues that the earnings effect is “immaterial” and the error is not worth correcting.
c)A company takes a one-time charge against income in order to reduce assets, which results in lower expenses in the future.
d) A company recognizes revenues before it is appropriate to do so.
arrow_forward
Which of the following is not a reason a company would be willing to accept new business at a loss?
A.)
The company has the expectation that certain customers can influence other potential customers.
B.)
The company has the expectation that it will make up for it in later years and has the expectation that certain customers can influence other potential customers.
C.)
The company has the expectation that its estimates will prove incorrect and that the business will result in a profit.
D.)
The company has the expectation that it will make up for it in later years.
arrow_forward
Ross’s Lipstick Company’s long-term debt agreements make certain demands on the business. For example, Ross may not purchase treasury stock in excess of the balance of retained earnings. Also, long-term debt may not exceed stockholders’ equity, and the current ratio may not fall below 1.50. If Ross fails to meet any of these requirements, the company’s lenders have the authority to take over management of the company. Changes in consumer demand have made it hard for Ross to attract customers Current liabilities have mounted faster than current assets, causing the current ratio to fall to 1.47. Before releasing financial statements, Ross’s management is scrambling to improve the current ratio. The controller points out that an investment can be classified as either long-term or short-term, depending on management’s intention. By deciding to convert an investment to cash within one year, Ross can classify the investment as short-term-a current asset. On the controller’s recommendation,…
arrow_forward
Which of the following is a disadvantage of long-term debt as a means of company financing?
Group of answer choices
Debtholders have preferential status in the event of a company being wound up.
Tax relief is available on interest payments.
Debt is often quicker to arrange compared to equity.
The amount and timing of interest payments is predictable, making budgeting easier.
arrow_forward
Sell-Soft is the defendant in numerous lawsuits claiming unfair trade practices. Sell- Soft has strong incentives not to disclose these contingent liabilities. However, GAAP requires that companies report their contingent liabilities.
Requirements
Why would a company prefer not to disclose its contingent liabilities?
Describe how a bank could be harmed if a company seeking a loan did not disclose its contingent liabilities.
What ethical tightrope must companies walk when they report contingent liabilities?
arrow_forward
A company accounts for possible bad debts using the allowance method. When an actual bad debt occurs,
what effect does it have on the accounting equation?
O Decreases asscts and decreases stockholders' equity.
O Increases assets and increases stockholders' equity.
O Decreases assets and decreases liabilities.
O No effect on the accounting equation.
arrow_forward
The Boeing Company, manufacturer of jet aircraft, is the defendant in numerous lawsuits claiming unfair trade practices. Boeing has strong incentives not to disclose these contingent liabilities. However, financial accounting standards require that companies report their contingent liabilities.
Required:
a. Why would a company prefer not to disclose its contingent liabilities?
b. Describe how a bank could be harmed if a company seeking a loan did not disclose its contingent liabilities.
c. What is the ethical tightrope that each company must walk when it reports its contingent liabilities?
arrow_forward
A company needs financing. The CFO is proposing that her company issues debt rather than equity, because interest rates are low and thus debt is clearly cheaper than equity. 1) What do do you think of the reasoning behind the CFO’s idea (i.e., simply answer the question: is the CFO's reasoning right)? 2) Discuss why you think so.
arrow_forward
If we hold all other factors the same, an increase in interest rates will:
a. Decrease the present value of a stream of constant payments we expect to receive.
b. Increase the present value of a stream of constant payments we expect to receive.
c. Decrease the interest revenue that a company will earn on its funds that it holds in its interest-bearing checking account.
d. No impact on how much a company should be willing to pay for factory equipment that is expected to significantly reduce the factory electricity costs.
arrow_forward
What are lines of credit? From the viewpoint of a short-term
creditor, why do lines of credit increase a company’s liquid-ity? How are the unused portions of these lines presented in
financial statements?
arrow_forward
Ross’s Lipstick Company’s long-term debt agreements make certain demands on the business. For example, Ross may not purchase treasury stock in excess of the balance of retained earnings. Also, long-term debt may not exceed stockholders’ equity, and the current ratio may not fall below 1.50. If Ross fails to meet any of these requirements, the company’s lenders have the authority to take over the management of the company.
Changes in consumer demand have made it hard for Ross to attract customers. Current liabilities have mounted faster than current assets, causing the current ratio to fall to 1.47. Before releasing financial statements, Ross’s management is scrambling to improve the current ratio. The controller points out that an investment can be classified as either long-term or short-term, depending on management’s intention. By deciding to convert an investment to cash within one year, Ross can classify the investment as short-term—a current asset. On the controller’s…
arrow_forward
SEE MORE QUESTIONS
Recommended textbooks for you
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337619455/9781337619455_smallCoverImage.gif)
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Related Questions
- Classify the following events as mostly systematic or mostly unsystematic. Is the distinction clear inevery case? Provide detailed explanation. a. Short-term interest rates increase unexpectedly.b. The interest rate a company pays on its short-term debt borrowing is increased by its bank.c. Oil prices unexpectedly decline.d. A manufacturer loses a multimillion-dollar product liability suit.arrow_forwardIf one of your firm's customers is "stretching" its accounts payable, this may be a nuisance but it does not represent a real financial cost to your firm as long as the customer periodically pays off its entire balance. O True O Falsearrow_forwardUnder standard accounting rules, it is possible for a company’s liabilities to exceed its assets. When this occurs,the owners’ equity is negative. Can this happen with market values? Why or why not?arrow_forward
- Which of the following is an example of “cookie jar” accounting? a) A company creates cash reserves in profitable years so the money can be used to offset poor earnings in bad years to give the impression that the company is consistently achieving earnings goals and meeting investor expectations. b)A company intentionally misapplies GAAP and, if caught, argues that the earnings effect is “immaterial” and the error is not worth correcting. c)A company takes a one-time charge against income in order to reduce assets, which results in lower expenses in the future. d) A company recognizes revenues before it is appropriate to do so.arrow_forwardWhich of the following is not a reason a company would be willing to accept new business at a loss? A.) The company has the expectation that certain customers can influence other potential customers. B.) The company has the expectation that it will make up for it in later years and has the expectation that certain customers can influence other potential customers. C.) The company has the expectation that its estimates will prove incorrect and that the business will result in a profit. D.) The company has the expectation that it will make up for it in later years.arrow_forwardRoss’s Lipstick Company’s long-term debt agreements make certain demands on the business. For example, Ross may not purchase treasury stock in excess of the balance of retained earnings. Also, long-term debt may not exceed stockholders’ equity, and the current ratio may not fall below 1.50. If Ross fails to meet any of these requirements, the company’s lenders have the authority to take over management of the company. Changes in consumer demand have made it hard for Ross to attract customers Current liabilities have mounted faster than current assets, causing the current ratio to fall to 1.47. Before releasing financial statements, Ross’s management is scrambling to improve the current ratio. The controller points out that an investment can be classified as either long-term or short-term, depending on management’s intention. By deciding to convert an investment to cash within one year, Ross can classify the investment as short-term-a current asset. On the controller’s recommendation,…arrow_forward
- Which of the following is a disadvantage of long-term debt as a means of company financing? Group of answer choices Debtholders have preferential status in the event of a company being wound up. Tax relief is available on interest payments. Debt is often quicker to arrange compared to equity. The amount and timing of interest payments is predictable, making budgeting easier.arrow_forwardSell-Soft is the defendant in numerous lawsuits claiming unfair trade practices. Sell- Soft has strong incentives not to disclose these contingent liabilities. However, GAAP requires that companies report their contingent liabilities. Requirements Why would a company prefer not to disclose its contingent liabilities? Describe how a bank could be harmed if a company seeking a loan did not disclose its contingent liabilities. What ethical tightrope must companies walk when they report contingent liabilities?arrow_forwardA company accounts for possible bad debts using the allowance method. When an actual bad debt occurs, what effect does it have on the accounting equation? O Decreases asscts and decreases stockholders' equity. O Increases assets and increases stockholders' equity. O Decreases assets and decreases liabilities. O No effect on the accounting equation.arrow_forward
- The Boeing Company, manufacturer of jet aircraft, is the defendant in numerous lawsuits claiming unfair trade practices. Boeing has strong incentives not to disclose these contingent liabilities. However, financial accounting standards require that companies report their contingent liabilities. Required: a. Why would a company prefer not to disclose its contingent liabilities? b. Describe how a bank could be harmed if a company seeking a loan did not disclose its contingent liabilities. c. What is the ethical tightrope that each company must walk when it reports its contingent liabilities?arrow_forwardA company needs financing. The CFO is proposing that her company issues debt rather than equity, because interest rates are low and thus debt is clearly cheaper than equity. 1) What do do you think of the reasoning behind the CFO’s idea (i.e., simply answer the question: is the CFO's reasoning right)? 2) Discuss why you think so.arrow_forwardIf we hold all other factors the same, an increase in interest rates will: a. Decrease the present value of a stream of constant payments we expect to receive. b. Increase the present value of a stream of constant payments we expect to receive. c. Decrease the interest revenue that a company will earn on its funds that it holds in its interest-bearing checking account. d. No impact on how much a company should be willing to pay for factory equipment that is expected to significantly reduce the factory electricity costs.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337619455/9781337619455_smallCoverImage.gif)
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning