[alazo]

How would each of the following six different
Transactions affect (I) cash and (ii) net working
Capital:
a. Paying out a $2 million cash dividend.
b. A customer paying a $2,500 bill resulting from a previous sale.
c. Paying $5,000 previously owed to one of its suppliers.
d. Borrowing $1 million long-term and investing the proceeds in inventory.
e. Borrowing $1 million short-term and investing the proceeds in inventory.
f. Selling $5 million of marketable securities for cash.

[morgaine300]

First, you need to make sure that you know the working capital equation: current assets minus current liabiliites.

For each transaction, you need to think which accounts it affects. I'll do the first one. Paying out a dividend will reduce retained earnings, and it will reduce cash. Since working capital does not involve retained earnings, you don't need to worry about that part. But since it reduces cash, it will affect that account. Also, since cash is a current asset, it affects total current assets by reducing them also.

So now you have less current assets. How will that affect working capital?

If you are not sure how that affects the working capital, then make up some numbers for your current assets and current liabilities. Make up any numbers -- they don't have to be realistic, like $10 million current assets and $7 million current liabilities. Then literally do the math: subtract the $2 million of cash paid for the dividends from the current asset number, and just see what it does to the working capital.

Do keep in mind that each one is independent of the others, so you're "starting over" with each transaction.

Now I'll leave you to try the rest of them. If you want to post your answers, someone can check them.

[minakshiray]

a) net working capital will decrease
b) net working capital will remain unchanged
c) net working capital position will remain unchanged
d) net working capital will go up
e) nwt working capital position will remain unchanged
f) net working capital will remain unchanged

[morgaine300]

Those are all correct for working capital. The problem also asks the affect on cash. I suspect you know the answers if you got all the working capital ones correctly. (i.e. since cash is an asset you have to know how that was affected.) But if you want those checked too, post them.

[jayhask]

When we calculate working capital requirements then tell me y we use average a-recievable inventory and payables?

[GBLAIR05]

How would each of the following six different
Transactions affect (I) cash and (ii) net working
Capital:
a. Paying out a $2 million cash dividend.
b. A customer paying a $2,500 bill resulting from a previous sale.
c. Paying $5,000 previously owed to one of its suppliers.
d. Borrowing $1 million long-term and investing the proceeds in inventory.
e. Borrowing $1 million short-term and investing the proceeds in inventory.
f. Selling $5 million of marketable securities for cash.

[GBLAIR05]

How would each of the following six different
Transactions affect (I) cash and ?
a. Paying out a $2 million cash dividend.
b. A customer paying a $2,500 bill resulting from a previous sale.
c. Paying $5,000 previously owed to one of its suppliers.
d. Borrowing $1 million long-term and investing the proceeds in inventory.
e. Borrowing $1 million short-term and investing the proceeds in inventory.
f. Selling $5 million of marketable securities for cash.

[GBLAIR05]

a. reduce cash
b. increase cash
c.decrease cash
d
e.
f.increase cash

[bnesselrotte]

New Member

How would each of the following six different
Transactions affect (I) cash and net working capital?
a. Paying out a $2 million cash dividend.
b. A customer paying a $2,500 bill resulting from a previous sale.
c. Paying $5,000 previously owed to one of its suppliers.
d. Borrowing $1 million long-term and investing the proceeds in inventory.
e. Borrowing $1 million short-term and investing the proceeds in inventory.
f. Selling $5 million of marketable securities for cash.

[morgaine300]

You should start a new post for your question instead of tagging onto another. All the threads would be 300 pages long if we always did this.

It's the same question as originally posted and that person already posted their answers and I already responded to that. We are not here just to do your work for you... but the answers are already in this thread, so at least make the effort to read the thread you tagged on to.

[bnesselrotte]

Maybe we are all having the same problem and my answers were not the same as the previous people who posted. This is my answers and please let me know where I went wrong:
A. Decreases cash No change in net working capital because it affects retained earnings
B. Increases cash Increases net working capital because it is an accounts receivable
C. Decreases cash Decreases net working capital because it is an accounts payable
D. Increases cash No change in net working capital because it is a long-term investment and purchaeses inventory later on down the road
E. Increases cash Increases net working capital because it is a short-term investment and purchases inventory to be sold soon
F. Increases cash Increases net working capital because it markets securities for cash