Sells $5,000 (000) of their Long-term assets http://ww2.capsim.com/cgi-bin/CpCGI

Question

Sells $5,000 (000) of their Long-term assets

http://ww2.capsim.com/cgi-bin/CpCGIReports2011.exe?XM=1&studentkey=1273694&simid=C59559&Round=4&Report=CapCourier|AnnReport

Looking forward to next year, if Baldwin’s current cash balance is $17,478 (000) and cash flows from operations next period are unchanged from this period and Baldwin 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 Baldwin to the most risk of needing an emergency loan? Select: 1 Liquidates the entire inventory Purchases assets at a cost of $15,000 (000) Retires $20,000 (000) in long-term debt

Sells $5,000 (000) of their Long-term assets

http://ww2.capsim.com/cgi-bin/CpCGIReports2011.exe?XM=1&studentkey=1273694&simid=C59559&Round=4&Report=CapCourier|AnnReport

Explanation / Answer

Retireing $20,000 (000) in long-term debt would result in heavy cash outflow for Baldwin. Baldwin has only  $17,478 (000) cash in hand. Retiring long term deby will reduce this balance to zero and would require additional financing to the tune of $2522(000) i.e. (20000-17478)(000) in the form of loans.

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