Cases in Finance
3rd Edition
by Jim DeMello
Complete Chapter Solutions Manual
are included (Ch 1 to 25)
** Immediate Download
** Swift Response
** All Chapters included
** Excel Files included
, Solution to Case 1
Financial Statements, Cash Flows and Taxes
Ultra Cable Corporation
Answers to questions:
1. Using a cash flow statement explain why Ultra Cable Corporation’s cash balance has
declined so precipitously this past year.
The statement of cash flows shows that the firm has invested heavily in accounts
receivable, inventories and fixed assets. These investments were only partially funded by
an increase in payables and retained earnings. Ultra Cable borrowed $2.565million worth
of short and long-term debt and drew down on its cash reserves to fund the balance. Thus,
although sales went up and cost of goods sold declined, the acquisition of assets and
business expansion activities led to a reduction in the cash balance.
1-1
, Ultra Cable Corporation
Statement of Cash Flows
Current Year
Cash at beginning of current year $ 100,000
Operating activity
Net income 357,750
Plus:
Depreciation 197,500
Increase in accounts payable 225,000
Less:
Increase in accounts receivable (850,000)
Increase in inventory (1,626,125)
Net cash from operating activity (1,695,875)
Investment activity
Fixed asset acquisitions (1,975,000)
Net cash from investment activity (1,975,000)
Financing activity
Increase in notes payable 1,125,000
Increase in long-term debt 2,565,700
Dividends paid (107,325)
Increase in common stock -
Net cash from financing activity 3,583,375
Net decrease in Cash (87,500)
Cash, end of current year $ 12,500
2. Why has Ultra Cable’s stock price dropped so much recently despite an increase in its
revenues and its earnings per share?
Although Ultra Cable has made a net profit that is higher than that of the previous year, its
net profit margin is lower (6.98% vs. 7.43%). Most of this decrease has been caused by the
significant increase in debt in the current year resulting in much higher interest expenses
1-2
3rd Edition
by Jim DeMello
Complete Chapter Solutions Manual
are included (Ch 1 to 25)
** Immediate Download
** Swift Response
** All Chapters included
** Excel Files included
, Solution to Case 1
Financial Statements, Cash Flows and Taxes
Ultra Cable Corporation
Answers to questions:
1. Using a cash flow statement explain why Ultra Cable Corporation’s cash balance has
declined so precipitously this past year.
The statement of cash flows shows that the firm has invested heavily in accounts
receivable, inventories and fixed assets. These investments were only partially funded by
an increase in payables and retained earnings. Ultra Cable borrowed $2.565million worth
of short and long-term debt and drew down on its cash reserves to fund the balance. Thus,
although sales went up and cost of goods sold declined, the acquisition of assets and
business expansion activities led to a reduction in the cash balance.
1-1
, Ultra Cable Corporation
Statement of Cash Flows
Current Year
Cash at beginning of current year $ 100,000
Operating activity
Net income 357,750
Plus:
Depreciation 197,500
Increase in accounts payable 225,000
Less:
Increase in accounts receivable (850,000)
Increase in inventory (1,626,125)
Net cash from operating activity (1,695,875)
Investment activity
Fixed asset acquisitions (1,975,000)
Net cash from investment activity (1,975,000)
Financing activity
Increase in notes payable 1,125,000
Increase in long-term debt 2,565,700
Dividends paid (107,325)
Increase in common stock -
Net cash from financing activity 3,583,375
Net decrease in Cash (87,500)
Cash, end of current year $ 12,500
2. Why has Ultra Cable’s stock price dropped so much recently despite an increase in its
revenues and its earnings per share?
Although Ultra Cable has made a net profit that is higher than that of the previous year, its
net profit margin is lower (6.98% vs. 7.43%). Most of this decrease has been caused by the
significant increase in debt in the current year resulting in much higher interest expenses
1-2
