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Analysis for Financial Management, 11e SUGGESTED ANSWERS TO EVEN-NUMBERED PROBLEMS Chapter 1 2. Management is either dumb or thinks its board is. Earning $100 million on a $4 billion equity investment is a return of 2.5 percent, a figure well 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 sharply 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 2011–2014 ($000). 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
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