Chapter 19, Problem 1QP

a.

Summary Introduction

To describe: How paying out an extra $2 million in cash dividend will affect cash and net working capital of the company D.

Explanation of Solution

Paying out extra 2 million in cash dividend will decrease both the cash and the working capital by $2 million.

b.

Summary Introduction

To describe: How customer paying out $2,500 bill will affect cash and net working capital of the company D.

Explanation of Solution

Customer paying $2,500 bill from previous sale will result in increase of $2,500 in cash and leaves the working capital unchanged.

c.

Summary Introduction

To describe: How paying $5,000 to one of the suppliers will affect cash and net working capital of the company D.

Explanation of Solution

The company paying its bill payable of $5,000 to one of the suppliers will decrease the cash of $5,000 and leaves the net working capital unchanged.

d.

Summary Introduction

To describe: How borrowing one million $ in long term and investing the proceeds in inventory will affect cash and net working capital of the company D.

Explanation of Solution

The company borrowing one million $ in long term and investing the proceeds in inventory will leave the cash unchanged and increase the net working capital by $1 million.

e.

Summary Introduction

To describe: How borrowing one million $ in short term and investing the proceeds in inventory will affect cash and net working capital of the company D.

Explanation of Solution

The company borrowing one million $ in short term and investing the proceeds in inventory will leave the cash unchanged and leave the net working capital unchanged.

f.

Summary Introduction

To describe: How selling $5 million of marketable securities for cash will affect cash and net working capital of the company D.

Explanation of Solution

Selling a company’s $5 million of marketable securities for cash will increase $ 5 million in cash and leave the net working capital unchanged.