Your friend has recently started up a new business to produce and sell swimming suits but...

 

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Your friend has recently started up a new business to produce and sell swimming suits but is worried about the seasonality of cash flows the business will face. This is because the demand for swimming suits will most likely be higher in summer than in other seasons, particularly winter. He asks you for help on how he should manage this risk. What would your advice be? [10 marks] Part B Citigroup with the equity accounts shown below has declared a 15% stock dividend when the market value of its equity is 30 per share. Ordinary Shares (1 per share) Capital Surplus Retained earnings Total owners' equity 500,000 2,250,000 3,500,000 6,250,000 (a) What effects on the equity accounts will the distribution of the stock dividend have? [8 marks] (b) Suppose Citigroup instead decides on a five-for-two stock split. What effect does this have on the equity accounts? Your friend has recently started up a new business to produce and sell swimming suits but is worried about the seasonality of cash flows the business will face. This is because the demand for swimming suits will most likely be higher in summer than in other seasons, particularly winter. He asks you for help on how he should manage this risk. What would your advice be? [10 marks] Part B Citigroup with the equity accounts shown below has declared a 15% stock dividend when the market value of its equity is 30 per share. Ordinary Shares (1 per share) Capital Surplus Retained earnings Total owners' equity 500,000 2,250,000 3,500,000 6,250,000 (a) What effects on the equity accounts will the distribution of the stock dividend have? [8 marks] (b) Suppose Citigroup instead decides on a five-for-two stock split. What effect does this have on the equity accounts?

Answer rating: 100% (QA)

Advice on Managing Seasonal Cash Flow Risk 1 Forecast and Budget Your friend should carefully forecast and budget for the seasonal variations in cash flows By analyzing historical data and market tren... View the full answer