Question

Looking forward to next year, if Digby’s current cash amount is $17,624 (000) and cash flows...

Looking forward to next year, if Digby’s current cash amount is $17,624 (000) and cash flows from operations next period are unchanged from this period and Digby takes ONLY the following actions relating to cash flows from investing and financing activities:

Issues $2,000 (000) of long-term debt

Pays $4,000 (000) in dividends

Retires $10,000 (000) in debt

Which of the following activities will expose Digby to the most risk of needing an emergency loan? Select: 1

Sells $7,000 (000) of long-term assets

Issues 100 (000) shares of common stock

Repurchases $10,000 (000) of stock

Purchases assets at a cost of $15,000 (000)

Homework Answers

Answer #1

The activities that will result in need of an emergency are last 2 activities. i.e. Repurchase of stock and Purchase assets. This is because Both of these activities require a huge amount of cash outflow whereas the first 2 activities i.e selling of long term asset and issue of stock, both will result in cash inflow.

Also,

Base on the cash in had right now and future expenses i.e. beg balance of 17624+2000 - 4000-10000 = $ 5,624.

So Based on the cash availability, if digby wants to repurchase stock or buy asset both these activities require more cash than digby already has which will result in a need of emergency loan

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