Consider the following potential events that might have occurred to Global Congl
ID: 2552568 • Letter: C
Question
Consider the following potential events that might have occurred to Global Conglomerate on December 30, 2015. For each one, indicate which line items in Global's balance sheet would be affected and by how much. Also indicate the change to Global's book value of equity. (In all cases, ignore any tax consequences for simplicity.) a. Global used $16 million of its available cash to repay $16 million of its long-term debt. b. A warehouse fire destroyed $7 million worth of uninsured inventory c. Global used $3 million in cash and $3 million in new long-term debt to purchase a $6 million building d. A large customer owing $4 million for products it already received declared bankruptcy, leaving no possibility that Global would ever receive payment. e. Global's engineers discover a new manufacturing process that will cut the cost of its flagship product by over 50% f. A key competitor announces a radical new pricing policy that will drastically undercut Global's prices a. Global used $16 million of its available cash to repay $16 million of its long-term debt. (Select from the drop-down menus.) Vby $millin, and cash would Vby the same amount. The book value of equity would be Long-term liabilities would (Round to the nearest integer.) b. A warehouse fire destroyed S7 million worth of uninsured inventory. (Select from the drop-down menu.) Inventory would c. Global used $3 million in cash and $3 million in new long-term debt to purchase a $6 million building. (Select from the drop-down menus.) by Smilion, as would the book value of equity. (Round to the nearest integer.) by Smillio, cash would V by S million, and long-term liabilities would Vby Smillion. There Long-term assets would would be no change to the book value of equity. (Round to the nearest integer.) d. A large customer owing $4 million for products it already received declared bankruptcy, leaving no possibility that Global would ever receive payment. (Select from the drop-down menus.) Vby S million, as would the book value of equity. (Round to the nearest integer.) e. Global's engineers discover a new manufacturing process that will cut the cost of its flagship product by over 50%. (Select the best choice below.) O A. This event would not affect the balance sheet. O B. This event would decrease inventory by 50% ° C. This event would increase the book value of equity by 50% D. This event would increase accounts receivable by 50% f. A key competitor announces a radical new pricing policy that will drastically undercut Global's prices. (Select the best choice below.) O A. This event would decrease cash by the same percentage O B. This event would increase accounts payable by the same percentage O C. This event would decrease accounts receivable by the same percentage Click to select your answer(s).Explanation / Answer
a. Long-term liabilities would decrease by $16 million, and cash would decrease by the same amount.. The book value of equity would be unchanged. b. Inventory would decrease by $7 million, as would the book value of equity. c. Long-term assets would increase by $6 million, cash would decrease by $3 million, and long-term liabilities would increase by $3 million. There would be no change to the book value of equity. d. Accounts receivable would decrease by $4 million, as would the book value of equity. e. This event would not affect the balance sheet. f. This event would not affect the balance sheet.