1a) Analysts following Armstrong Products recently noted that the company\'s ope
ID: 2383992 • Letter: 1
Question
1a)
Analysts following Armstrong Products recently noted that the company's operating net cash flow increased over the prior year, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation?
a. The company issued new common stock.
b. The company sold a division and received cash in return.
c. The company cut its dividend.
d. The company made a large investment in a profitable new plant.
e. The company issued new long-term debt.
Which of the following statements is NOT CORRECT?
1b)
a. "Going public" establishes a firm's true intrinsic value, and it also insures that a highly liquid market will always exist for the firm's shares.
b. When a corporation's shares are owned by a few individuals and are not traded on public markets, we say that the firm is "closely, or privately, held."
c. Publicly owned companies have shares owned by investors who are not associated with management, and public companies must register with and report to a regulatory agency such as the SEC.
d. When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public," and the market for such stock is called the new issue market.
e. It is possible for a firm to go public and yet not raise any additional new capital at the time.
a. The company issued new common stock.
b. The company sold a division and received cash in return.
c. The company cut its dividend.
d. The company made a large investment in a profitable new plant.
e. The company issued new long-term debt.
Explanation / Answer
d. The company made a large investment in a profitable new plant. Because of investing in new plant company's investing activities have negative cash flow thus cash as reported on balance sheet decreased 1b) a. "Going public" establishes a firm's true intrinsic value, and it also insures that a highly liquid MARKET will always exist for the firm's shares.
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