Question

4. Consider the following potential events that might have occurred to Global on December 30, 2016. For each one, indicate which line items in Global balance sheet would be affected and by how much. Also indicate the change to Global’s book valuate of equity. a. Global used $20 million of its available cash to repay $20 million of its long-term debt. b. A warehouse fire destroyed $5 million worth of uninsured inventory. c. Global used $5 million in cash and $5 million in new long-term debt to purchase a $10 million building. d. a large customer owing $3 million for products it already received declared bankruptcy, leaving no possibility that Global would ever receive payment. e. Global’s engineers discover a new manufacturing process that will cut the cost of its flagship product by more than 50%. f. a key competitor announces a radical new pricing policy that will drastically undercut Global’s prices.

Answer 1

4)
a	CA (cash) got reduced		Long term debt got reduced		Equity Book Value remains unchange
b	CA (inventory) reduced				Equity Book Value also reduced
c	CA (cash) reduced 5m		Building raised by 10m		Long term debt raised		Equity Book Value remains unchange
d	CA (accounts receivable) reduced		Equity Book Value also reduced of Bad Debt
e	no effect as no transaction or cost or revenue affect.
f	no transaction so no affect to B/S