Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259277214
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 2, Problem 9CTCR
Summary Introduction
To discuss: The possibility of having negative cash flow to stockholders’ and creditors.
Introduction:
Cash flow to the stockholders’ and creditors:
The cash flow to the stockholders’ and creditors of the company refers to the net payment made to the shareholders and creditors of the company.
Cash flow to the creditors:
It refers to the interest paid to the creditors minus the net fresh debt borrowed by the company.
Cash flow to the stockholders:
It refers to the dividend paid to the shareholders of the company minus the fresh equity raised by the company.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
How can you tell by looking at a company's Statement of Cash Flows if the company is borrowing more money or paying back more debt?
What does a positive operating cash flow mean for a company?
What do a positive cash flow from assets, a positive cash flow to creditors and a positive cash flow to stockholders mean?
What do these positive cash flows mean for an expansion plan financed by debt and equity?
How would the statement of cash flows indicate to an investor that a company is experiencing a ‘cash-crunch?
Chapter 2 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 2.1 - Prob. 2.1ACQCh. 2.1 - Prob. 2.1BCQCh. 2.1 - What do we mean by financial leverage?Ch. 2.1 - Explain the difference between accounting value...Ch. 2.2 - What is the income statement equation?Ch. 2.2 - What are the three things to keep in mind when...Ch. 2.2 - Why is accounting income not the same as cash...Ch. 2.3 - What is the difference between a marginal and an...Ch. 2.3 - Do the wealthiest corporations receive a tax break...Ch. 2.4 - Prob. 2.4ACQ
Ch. 2.4 - Prob. 2.4BCQCh. 2.4 - Why is interest paid not a component of operating...Ch. 2 - What is the relationship between current assets...Ch. 2 - What is the purpose of the income statement?Ch. 2 - Prob. 2.3CCh. 2 - Prob. 2.4CCh. 2 - Liquidity. What does liquidity measure? Explain...Ch. 2 - Accounting and Cash Flows. Why is it that the...Ch. 2 - Book Values versus Market Values. In preparing a...Ch. 2 - Prob. 4CTCRCh. 2 - Prob. 5CTCRCh. 2 - Prob. 6CTCRCh. 2 - Prob. 7CTCRCh. 2 - Net Working Capital and Capital Spending. Could a...Ch. 2 - Prob. 9CTCRCh. 2 - Firm Values. Referring back to the examples used...Ch. 2 - Building a Balance Sheet. Bear Tracks, Inc., has...Ch. 2 - Building an Income Statement. Pharrell, Inc., has...Ch. 2 - Dividends and Retained Earnings. Suppose the firm...Ch. 2 - Per-Share Earnings and Dividends. Suppose the firm...Ch. 2 - Prob. 5QPCh. 2 - Tax Rates. In Problem 5, what is the average tax...Ch. 2 - Calculating OCF. Hailey, Inc., has sales of...Ch. 2 - Prob. 8QPCh. 2 - Calculating Additions to NWC. The December 31,...Ch. 2 - Cash Flow to Creditors. The December 31, 2015,...Ch. 2 - Cash Flow to Stockholders. The December 31, 2015,...Ch. 2 - Prob. 12QPCh. 2 - Market Values and Book Values. Klingon Widgets,...Ch. 2 - Prob. 14QPCh. 2 - Using Income Statements. Given the following...Ch. 2 - Prob. 16QPCh. 2 - Prob. 17QPCh. 2 - Prob. 18QPCh. 2 - Net Income and OCF. During the year, Belyk Paving...Ch. 2 - Prob. 20QPCh. 2 - Prob. 21QPCh. 2 - Prob. 22QPCh. 2 - Prob. 23QPCh. 2 - Net Fixed Assets and Depreciation. On the balance...Ch. 2 - Tax Rates. Refer to the corporate marginal tax...Ch. 2 - Prob. 1CCCh. 2 - Prob. 2CC
Knowledge Booster
Similar questions
- If a company borrows more than it pays in interest. Select one: a.Cash flow to stockholders will be negative b.Cash flow to creditors will be negative O c.Cash flow to stockholders will be positive O d.Cash flow to creditors will be positivearrow_forwardWhat questions do investors and creditors ask about the company's future cash flow based on the facts in the income statement?arrow_forwardInvestors and creditors are looking for more than just profitability? What may be gleaned from the cash flow statement?arrow_forward
- Borrowing cash from the bank would have what effect on the accounting equation? O Assets increase and stockholders' equity increases. o Assets increase and liabilities increase. o Liabilities decrease and stockholders' equity increases. o Liabilities increase and stockholders' equity decreases.arrow_forwardWhat are some of the benefits and limitations of using the cash flow statement for financial analysis? How can investors and analysts use the information presented on the cash flow statement to make decisions about a company?arrow_forwardCompany Walmart: Could management use long-term liabilities to manage earnings? Explain.arrow_forward
- Consider the dilemma you might someday face if you are the chief financial officer of a company that is struggling to maintain a positive cash flow, despite the fact that the company is reporting a substantial positive net income. Maybe the problem is so severe that there is often insufficient cash to pay ordinary business expenses, like utilities, salaries, and payments to suppliers. Assume that you have been asked to communicate to your board of directors about your companys year, in retrospect, as well as your vision for the companys future. Write a memo that expresses your insights about past experience and present prospects for the company. Note that the challenge of the assignment is to keep your integrity intact, while putting a positive spin on the situation, as much as is reasonably possible. How can you envision the situation turning into a success story?arrow_forwardHow do creditors assess risk when lending funds to a company?arrow_forwardWhat information can best be elicited from a receivable ratio? A. company performance with current debt collection B. credit extension effect on cash sales C. likelihood of future customer bankruptcy filings D. an increase in future credit sales to current customersarrow_forward
- Cash flow to creditors is best described as: O Cash flow to creditors is also referred to as free cash flow. The sum of cash flow to bondholders and shareholders The net difference between total assets and total liabilities. O Dividends paid out by a firm less net new equity raised. A firm's interest payments to creditors less net new borrowings.arrow_forwardWhen a company borrows money from the bank, what is the impact on the accounting equation? Group of answer choices Assets decrease and labilities increase Assets increase and liabilities increase Assets decrease and liabilities decrease Assets increase and liabilities decreasearrow_forwardHow did you calculate cash flow to stockholders? How did you calculate beginning and ending equity?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning