Consider the following potential events that might have taken place at Global Co
ID: 1191733 • Letter: C
Question
Consider the following potential events that might have taken place at Global Con- glomerate on December 27, 2012. For each one, indicate which line items in Global's cash flow statement would be affected and by how much. (In all cases, ignore any tax consequences for simplicity.)
(a) Global reduces its dividends paid on December 27, 2012 by 5 cents per share.
(b) Global purchases a new machine for $2 million which is financed by equity, debt, and cash in equal proportions.
(c) Global realizes that its plant is deteriorating faster than previously anticipated so that it raises its depreciation and amortization expenses by 25%.
(d) Global decides to pay back an additional $1 million to a supplier before the end of the year as a nice gesture.
Explanation / Answer
(a) cash flow from financing will increase by the amount of 5 cents per share.
(b) cash flow from investing activities will decline by $2 million, cash flow from financing activities increases by $1.33 million ,while beginning cash will reduce by $0.67 million.
(c) cash flow from operations will increase by increase in depreciation and amortization.
(d) no effect