Question: Pasadena Ltd Pasadena is a small manufacturing company During 2018

Pasadena Ltd. (Pasadena) is a small manufacturing company. During 2018, Pasadena has been struggling because of a slowdown in the overall economy and in the industry it supplies parts to. Sales are down significantly but the company has been unable to reduce many of its operating costs. To generate cash, Pasadena has been forced to sell off some land it owns at a loss. Even so, cash reserves have decreased by 50 percent. Management has decided to delay all but essential capital expenditures until business conditions have improved. Pasadena also had to repay a large bank loan that came due during the year. Despite extensive negotiations with a number of banks, the company was unable to refinance the loan. Fortunately, late in the year a new equity investor was found who provided new money to repay the bank loan and provide additional working capital. Pasadena didn't pay dividends during the year.

What pattern of cash flows would you expect to see if you examined Pasadena's cash flow statement for 2018? That is, would you expect operating, investing, and financing cash flows to be positive or negative? Explain your answer fully. Be sure to make reference to business conditions faced by the company.

View Solution:

Sale on SolutionInn
  • CreatedFebruary 26, 2015
  • Files Included
Post your question