The comparative statements of cash flows for Wung Corporation, a manufacturer of high-quality suits for men, follow. To expand its markets and familiarity with its brand, the company attempted a new strategic diversification in 2013 by acquiring a chain of retail men’s stores in outlet malls. Its plan was to expand in malls around the country, but department stores viewed the action as infringing on their territory.

Schedule of Noncash Investing and Financing Transactions
Issue of bonds payable for retail acquisition $ 100,000

Evaluate the success of the company’s strategy by answering the questions that follow.
1. What are the primary reasons cash flows from operating activities differ from net income in 2013 and in 2014? What is the effect of the acquisition in 2013? What conclusions can you draw from the changes in 2014?
2. Compute free cash flow for both years. What was the total cost of the acquisition? Was the company able to finance expansion in 2013 by generating internal cash flow? What was the situation in 2013?
3. What are the most significant financing activities in 2013? How did the company finance the acquisition? Do you think this is a good strategy? What other issues might you question in financing activities?
4. Based on results in 2014, what actions was the company forced to take and what is your overall assessment of the company’s diversificationstrategy?

  • CreatedMarch 26, 2014
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