Analysis for Financial Management, 13e
SUGGESTED ANSWERS TO EVEN-NUMBERED PROBLEMS
Chapter 1
2. Management is either foolish or thinks its board is. Earning $100 million on a $5
billion equity investment is a return of 2 percent, which is below any reasonable cost
of equity. As a board member, I would vote to cut management’s compensation, not
raise it. I would also criticize them for apparently attempting to deceive the board.
4. a. Cash rises $500,000; plant and equipment falls $300,000; equity rises $200,000.
b. Net plant and equipment rises $80 million; Cash falls $32 million; Bank debt
rises $48 million.
c. Net plant and equipment rises $60 million; cash falls $60 million.
d. Cash falls $40,000; Accounts payable falls $40,000.
e. Cash falls $240,000; Owners’ equity falls by $240,000 (via an increase in
Treasury stock).
f. Cash rises $80,000; Inventory falls; Accrued taxes, Owners’ equity, and possibly
other cost categories rise such that the algebraic sum equals $80,000.
g. Accounts receivable rise $120,000. Other categories change as described in part
f.
h. Cash falls $50,000. Owners’ equity falls by $50,000 (via Retained earnings).
6. a. R&E Supplies, Inc. Sources and Uses Statement 2018–2021 ($ thousands)
Sources of cash:
Decrease in cash and securities $259
Increase in accounts payable 2,205
Increase in current portion long-term debt 40
Increase in accrued wages 13
Increase in retained earnings 537
Total $3,054
Uses of cash:
Increase in accounts receivable $1,543
Increase in inventories 1,148
Increase in prepaid expenses 4
Increase in net fixed assets 159
Decrease in long-term debt 200
Total $3,054
b. Insights:
i. R&E is making extensive use of trade credit to finance a buildup in current assets.
The increase in accounts payable equals almost three fourths of total sources of
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