Working capital Management
Indicate how each of the following six different transactions Dynamic mattress might make would would affect I) cash and II)Networking capital
A) Paying out a $2 million cash dividend
B) A customer paying a $ 2500 bill resulting from a previous sale.
c) Paying $ 5000 previously owed to one of its suppliers
d) Borrowing $1 million long term and investing the proceeds in inventory
E) Selling $5 million of marketable securities for cash.
Selling $5 million of marketable securities for cash
5 million
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Working capital Management
Indicate how each of the following six different transactions Dynamic mattress might make would would affect I) cash and II)Networking capital
A) Paying out a $2 million cash dividend
B) A customer paying a $ 2500 bill resulting from a previous sale.
c) Paying $ 5000 previously owed to one of its suppliers
d) Borrowing $1 million long term and investing the proceeds in inventory
E) Selling $5 million of marketable securities for cash.
paying out a $2 million cash dividen
to get un answer for question
To determine the effect of each transaction on cash and networking capital, we need to understand the concept of working capital. Working capital refers to the difference between a company's current assets (such as cash, accounts receivable, inventory, etc.) and its current liabilities (such as accounts payable, short-term debt, etc.). It represents the amount of funds a company has available for day-to-day operations.
Now, let's analyze the effect of each transaction on cash and networking capital:
A) Paying out a $2 million cash dividend:
I) Cash decreases by $2 million, as the company pays out the dividend.
II) Networking capital decreases by $2 million since cash is considered a current asset, and this reduction results in a decrease in networking capital.
B) A customer paying a $2500 bill resulting from a previous sale:
I) Cash increases by $2500 as the company receives payment from the customer.
II) Networking capital remains unchanged as the payment comes from a customer's account receivable, which is already included in networking capital.
C) Paying $5000 previously owed to one of its suppliers:
I) Cash decreases by $5000 as the company pays its supplier.
II) Networking capital remains unchanged as the payment for the supplier is considered a reduction in accounts payable, which is already included in networking capital.
D) Borrowing $1 million long term and investing the proceeds in inventory:
I) Cash increases by $1 million from the loan proceeds.
II) Networking capital increases by $1 million as the cash is used to invest in inventory, which is a current asset and part of networking capital.
E) Selling $5 million of marketable securities for cash:
I) Cash increases by $5 million as the company sells the marketable securities.
II) Networking capital remains unchanged in this case as marketable securities are already included as part of networking capital.
In summary,
A) Decreases both cash and networking capital.
B) Increases cash but doesn't impact networking capital.
C) Decreases cash but doesn't impact networking capital.
D) Increases both cash and networking capital.
E) Increases cash but doesn't impact networking capital.