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Dahasolnce [82]
2 years ago
14

Looking forward to next year, if Digby’s current cash balance is $19,743 (000) and cash flows from operations next period are un

changed from this period and Digby takes ONLY the following actions relating to cash flows from investing and financing activities:
Issues 100 (000) shares of stock at the current stock price
Issues $200 (000) of long-term debt
Pays $40 (000) in dividends
Which of the following activities will expose Digby to the most risk of needing an emergency loan?
Select: 1
a) Purchases assets at a cost of $15,000 (000)
b) Retires $20,000 (000) in long-term debt
c) Liquidates the entire inventory
d) Sells $5,000 (000) of their Long-term assets
Business
1 answer:
Westkost [7]2 years ago
7 0

Answer:

The correct answer is B)

Explanation:

We know what he just spent a total of $340,000 on shares of stock, long-term debt and , dividends respectively. This means he is left with a cash balance of $16, 403, 000.

  • If he purchases an assets at a cost of $15,000,000 he ls left with a little above $1.4 Million in cash.
  • If the sells $5 Million of the company's assets, his cash balance goes up by that amount. No need for a loan.
  • If he liquidates the entire inventory, it only translates to more cash. So no  need for a loan.
  • However, if he settles $20 Million in debt, he is left with a deficit of $3,597,000 and must take up a loan immediately to stay afloat or be consumed by the weight of operating expenses.

Cheers!

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