# Ch026 - Chapter 26: Short-Term Finance and Planning 26.1...

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Chapter 26: Short-Term Finance and Planning 26.1 Start with the basic balance sheet equation, and substitute known definitions: Assets = Liabilities + Equity Current Assets + Fixed Assets = Current Liabilities + Long-Term Debt + Equity Since Net Working Capital = Current Assets - Current Liabilities, subtract Current Liabilities from both sides and substitute NWC: Net Working Capital + Fixed Assets = Long-Term Debt + Equity and we know that Current Assets = Cash + Other Current Assets, so we can substitute as: Cash + Other Current Assets - Current Liabilities = Long-Term Debt + Equity - Fixed Assets Then finally write in terms of cash: Cash = Long-Term Debt + Equity - Net Working Capital (excluding cash) - Fixed Assets 26.2 a. Decrease b. Decrease c. No change d. Increase e. No change f. No change g. Increase h. No change i. Increase j. Decrease k. Increase l. No change m. No change n. No change o. Decrease p. Decrease q. No change r. Decrease B-168

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26.3 Sources and Uses of Cash 20X6 Sources of cash: Cash from operations Net income \$68,600 Depreciation 5,225 Decrease in net working capital Increase in accounts payable 5,500 New stock 3,000 Total sources of cash \$82,325 Uses of cash: Increase in fixed assets \$12,725 Dividends 30,800 Increase in net working capital Investment in inventory 3,750 Increase in accounts receivable 9,750 Decrease in accrued expenses 3.300 Decrease in long-term debt 15,000 Total uses of cash \$75,325 Change in cash balance \$7,000 26.4 Sources and Uses of Cash 20X6 Sources of cash: Cash from operations Net income \$83,000 Depreciation 50,000 Total cash flow from operations 133,000 Decrease in net working capital Decrease in inventory 114,000 Increase in accounts payable 23,000 Increase in loans payable 376,000 Total sources of cash \$646,000 Uses of cash: Increase in fixed assets \$139,000 Dividends 100,000 Increase in net working capital Increase in accounts receivable 251,000 Decrease in taxes payable 132,000 Decrease in accrued expenses 11,000 Total uses of cash \$633,000 Change in cash balance \$13,000 B-169
26.5 First find the applicable component ratios:

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## This note was uploaded on 03/29/2010 for the course ECON 134a taught by Professor Lim during the Spring '08 term at UCSB.

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Ch026 - Chapter 26: Short-Term Finance and Planning 26.1...

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