John Marshall is employed as a bank loan officer for First State Bank. He is comparing...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
John Marshall is employed as a bank loan officer for First State Bank. He is comparing two companies that have applied for loans, and he wants your help in evaluating those companies. The two companies-Morris, Inc., and Walker Company -are approximately the same size and had approximately the same cash balance at the beginning of 2009. Because the total cash flows for the three-year period are virtually the same, John is inclined to evaluate the two companies as equal in terms of their desirability as loan candidates. Abbreviated information (in thousands of dollars) from Morris, Inc., and Walker Company is as follows: Morris, Inc. Walker Company 200920102011 2009 2010 2011 Cash flows from: Operating activities $10 $13 $15 $8 $3 S(2) Investing activities (5) (8) (10) (7) (5) 8 Financing activities 8| (3) 1 12 -0- Net from all activities $13 $2 s6 $13 $2 S6 Instructions a. Do you agree with John's preliminary assessment that the two companies are approximately equal in terms of their strength as loan candidates? Why or why not? b. What might account for the fact that Walker Company's cash flow from financing activities is zero in 2011? c. Generally, what would you advise John with regard to using statements of cash flows in evaluating loan candidates? 41 John Marshall is employed as a bank loan officer for First State Bank. He is comparing two companies that have applied for loans, and he wants your help in evaluating those companies. The two companies-Morris, Inc., and Walker Company -are approximately the same size and had approximately the same cash balance at the beginning of 2009. Because the total cash flows for the three-year period are virtually the same, John is inclined to evaluate the two companies as equal in terms of their desirability as loan candidates. Abbreviated information (in thousands of dollars) from Morris, Inc., and Walker Company is as follows: Morris, Inc. Walker Company 200920102011 2009 2010 2011 Cash flows from: Operating activities $10 $13 $15 $8 $3 S(2) Investing activities (5) (8) (10) (7) (5) 8 Financing activities 8| (3) 1 12 -0- Net from all activities $13 $2 s6 $13 $2 S6 Instructions a. Do you agree with John's preliminary assessment that the two companies are approximately equal in terms of their strength as loan candidates? Why or why not? b. What might account for the fact that Walker Company's cash flow from financing activities is zero in 2011? c. Generally, what would you advise John with regard to using statements of cash flows in evaluating loan candidates? 41
Expert Answer:
Related Book For
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-1259692406
18th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello
Posted Date:
Students also viewed these accounting questions
-
John Marshall is employed as a bank loan officer for First State Bank. He is comparing two companies that have applied for loans, and he wants your help in evaluating those companies. The two...
-
John Marshall is employed as a bank loan officer for First State Bank. He is comparing two companies that have applied for loans, and he wants your help in evaluating those companies. The two...
-
What are some signs of dental disease?
-
NiO is to be reduced to nickel metal in an industrial process by use of the reaction At 1600 K the equilibrium constant for the reaction is Kp = 6.0 Ã 102. If a CO pressure of 150 torr is to...
-
Duff is really interested in decreasing his tax liability, and by his very nature he is somewhat aggressive. A friend of a friend told him that cash transactions are more difficult for the IRS to...
-
Again consider the 400 parts in Table 2.2. From this table, \[ P(D \mid F)=\frac{P(D \cap F)}{P(F)}=\frac{10}{400} / \frac{40}{400}=\frac{10}{40} \] Note that in this example all four of the...
-
Tri-State Bank is investigating the processing time for loan applications. Samples were taken for 25 random days from 4 branches. These data can be found in the worksheet C16P5 in the OM5 Data...
-
Boyd Corporation issued $1,500,000 of 9% nonconvertible bonds at 107, due in 10 years. Each $1,000 bond was issued with 45 detachable stock warrants, each of which entitled the holder to purchase,...
-
1. Assume Wright Plastics is interested only in minimizing delivery costs. What order size should it use, if the pellets are delivered by a truck? How much should it order if they are delivered by...
-
There are two concentric spherical shells of masses mjand mzand radii R1 and R2 (R2 > R1). The force on a particle of mass mo kept at a distance r from the common centre is F. Then INCORRECT choice...
-
Explain the purpose of the parole evidence rule and the exceptions to the parole evidence rule. 4. Describe the primary methods for discharging a contract. 5. Describe the primary legal and equitable...
-
The property taxing statutes of the state in which you live. After review of the property tax statutes of Texas, cite and explain those parts of the statute that believed to provide a definition of...
-
Critically discuss the ways that ethical standards need to be monitored, audited, and enforced. Address the need for continuous improvement in company/corporate ethical standards.
-
Paul, an associate and not a partner, worked as an accountant for a very large accounting firm, called Griffen and Griffen LLP for the last 10 years. When he signed his contract of employment with...
-
1- LEMAY HOMETOWN LUMBER COMPANY LIMITEDIn March of 2016, Roseanne Chang, vice president of the Eastern Ontario Region of the Dominion Bank of Canada, was reviewing the file of Lemay Ho . write 1...
-
Identify the important components of executive pay and list down the assortment of tool available for compensating executives.
-
Create a data model for one of the processes in the end-of-chapter Exercises for Chapter 4. Explain how you would balance the data model and process model.
-
Provide an example showing how the following environ- mental forces affect accounting practices: a. Political and legal systems b. Economic systems c. Culture d. Technology and infrastructure
-
Assume that you will have a 10-year, $10,000 loan to repay to your parents when you graduate from college next month. The loan, plus 8 percent annual interest on the unpaid balance, is to be repaid...
-
Fire Code manufactures smoke detectors that are sold to homeowners throughout the United States at $20 apiece. Each detector is equipped with a sensory cell that is guaranteed to last two full years...
-
A \(0.010-\mathrm{kg}\) bullet is fired from a \(5.0-\mathrm{kg}\) gun with a muzzle velocity of \(250 \mathrm{~m} / \mathrm{s}\). (a) While the bullet is traveling in the barrel, what is the ratio...
-
A \(1500-\mathrm{kg}\) car going at \(6.32 \mathrm{~m} / \mathrm{s}\) collides with a \(3000-\mathrm{kg}\) truck at rest. If the collision is totally inelastic and takes place over an interval of...
-
On a low-friction track, a \(0.66-\mathrm{kg}\) cart initially going at \(1.85 \mathrm{~m} / \mathrm{s}\) to the right collides with a cart of unknown inertia initially going at \(2.17 \mathrm{~m} /...
Study smarter with the SolutionInn App