Suppose a business borrower projects that it will experience net profits of $2.1 million, compared to $2.7 million the previous year, and will record depreciation and other noncash expenses of $0.7 million this year versus $0.6 million last year. What is this firm’s projected cash flow for this year? Is the firm’s cash flow rising or falling? What are the implications for a lending institution thinking of loaning money to this firm? Suppose sales revenue rises by $0.5 million, cost of goods sold decreases by $0.3 million, while cash tax payments increase by $0.1 million and noncash expenses decrease by $0.2 million. What happens to the firm’s cash flow? What would be the lender’s likely reaction to these events?
Answer to relevant QuestionsWhat sources of information are available today that loan officers and credit analysts can use in evaluating a customer loan application?Motivation Corporation, seeking renewal of its $12 million credit line, reports the data in the following table (in millions of dollars) to Hot Springs National Bank’s loan department. Please calculate the firm’s cash ...What are the essential differences among working capital loans, open credit lines, asset-based loans, term loans, revolving credit lines, interim financing, project loans, and acquisition loans?What are the principal strengths and weaknesses of the different loan-pricing methods in use today?In order to help fund a loan request of $10 million for one year from one of its best customers, Lone Star Bank sold negotiable CDs to its business customers in the amount of $6 million at a promised annual yield of 2.75 ...
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