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Part $1$

Consider the following potential events that might have occurred to Global on December$30,2019.$ For each$$ one, indicate which line items in$$ Global's balance sheet would be affected and by how much. Also indicate the change to$$ Global's book value of equity.

a$.$ Global used

$ $20\mathrm{.}6$$$20\mathrm{.}6$

million of its available cash to repay

$ $20\mathrm{.}6$$$20\mathrm{.}6$

million of its$$ long$-$term debt.

b$.$ A warehouse fire destroyed

$ $4\mathrm{.}6$$$4\mathrm{.}6$

million worth of uninsured inventory.

c$.$ Global used

$ $5\mathrm{.}5$$$5\mathrm{.}5$

million in cash and

$ $4\mathrm{.}8$$$4\mathrm{.}8$

million in new$$ long$-$term debt to purchase a

$ $10\mathrm{.}3$$$10\mathrm{.}3$

million building.

d$.$ A large customer owing

$ $2\mathrm{.}6$$$2\mathrm{.}6$

million for products it already received declared$$ bankruptcy, leaving no possibility that Global would ever receive payment.

e$.$Global$\text{'}$s engineers discover a new manufacturing process that will cut the cost of its flagship product by more than

$51\%51\%.$

f$.$ A key competitor announces a radical new pricing policy that will drastically undercut$$ Global's prices.

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Part $1$

a$.$ Global used

$ $20\mathrm{.}6$$$20\mathrm{.}6$

million of its available cash to repay

$ $20\mathrm{.}6$$$20\mathrm{.}6$

million of its$$ long$-$term debt.$($Select the best choice$$ below.$)$

A$.$

$$Long$-$term liabilities would decrease by

$ $20\mathrm{.}6$$$20\mathrm{.}6$

$$million$,$ and cash would increase by the same amount. The book value of equity would be unchanged.

B$.$

$$Long$-$term liabilities would decrease by

$ $20\mathrm{.}6$$$20\mathrm{.}6$

$$million$,$ and cash would decrease by the same amount. The book value of equity would be unchanged.

C$.$

$$Long$-$term liabilities would decrease by

$ $20\mathrm{.}6$$$20\mathrm{.}6$

$$million$,$ and cash would decrease by the same amount. The book value of equity would change by

$ $20\mathrm{.}6$$$20\mathrm{.}6.$

D$.$

$$Long$-$term liabilities would increase by

$ $20\mathrm{.}6$$$20\mathrm{.}6$

$$million$,$ and cash would increase by the same amount. The book value of equity would be unchanged.

Part $2$

b$.$ A warehouse fire destroyed

$ $4\mathrm{.}6$$$4\mathrm{.}6$

million worth of uninsured inventory.$($Select the best choice$$ below.$)$

A$.$

Inventory would decrease by

$ $4\mathrm{.}6$$$4\mathrm{.}6$

$$million$,$ as would the book value of equity.

B$.$

Inventory would decrease by

$ $4\mathrm{.}6$$$4\mathrm{.}6$

$$million$,$ and the book value of equity would be unchanged.

C$.$

Inventory would increase by

$ $4\mathrm{.}6$$$4\mathrm{.}6$

$$million$,$ as would the book value of equity.

D$.$

Inventory would increase by

$ $4\mathrm{.}6$$$4\mathrm{.}6$

$$million$,$ and the book value of equity would decrease by the same amount.

Part $3$

c$.$ Global used

$ $5\mathrm{.}5$$$5\mathrm{.}5$

million in cash and

$ $4\mathrm{.}8$$$4\mathrm{.}8$

million in new$$ long$-$term debt to purchase a

$ $10\mathrm{.}3$$$10\mathrm{.}3$

million building.$($Select the best choice$$ below.$)$

A$.$

$$Long$-$term assets would increase by

$ $10\mathrm{.}3$$$10\mathrm{.}3$

$$million$,$ cash would increase by

$ $5\mathrm{.}5$$$5\mathrm{.}5$

$$million$,$ and$$ long$-$term liabilities would increase by

$ $4\mathrm{.}8$$$4\mathrm{.}8$

million. There would be no change to the book value of equity.

B$.$

$$Long$-$term assets would increase by

$ $10\mathrm{.}3$$$10\mathrm{.}3$

$$million$,$ cash would decrease by

$ $5\mathrm{.}5$$$5\mathrm{.}5$

$$million$,$ and$$ long$-$term liabilities would increase by

$ $4\mathrm{.}8$$$4\mathrm{.}8$

million. There would be no change to the book value of equity.

C$.$

$$Long$-$term assets would decrease by

$ $10\mathrm{.}3$$$10\mathrm{.}3$

$$million$,$ cash would increase by

$ $5\mathrm{.}5$$$5\mathrm{.}5$

$$million$,$ and$$ long$-$term liabilities would decrease by

$ $4\mathrm{.}8$$$4\mathrm{.}8$

million. There would be no change to the book value of equity.

D$.$

$$Long$-$term assets would decrease by

$ $10\mathrm{.}3$$$10\mathrm{.}3$

$$million$,$ cash would decrease by

$ $5\mathrm{.}5$$$5\mathrm{.}5$

$$million$,$ and$$ long$-$term liabilities would increase by

$ $4\mathrm{.}8$$$4\mathrm{.}8$

million. There would be no change to the book value of equity.

Part $4$

d$.$ A large customer owing

$ $2\mathrm{.}6$$$2\mathrm{.}6$

million for products it already received declared$$ bankruptcy, leaving no possibility that Global would ever receive payment.$($Select the best choice$$ below.$)$

A$.$

Accounts receivable would increase by

$ $2\mathrm{.}6$$$2\mathrm{.}6$

$$million$,$ and the book value of equity would decrease by the same amount.

B$.$

Accounts receivable would increase by

$ $2\mathrm{.}6$$$2\mathrm{.}6$

$$million$,$ as would the book value of equity.

C$.$

Accounts receivable would decrease by

$ $2\mathrm{.}6$$$2\mathrm{.}6$

$$million$,$ and the book value of equity would increase by the same amount.

D$.$

Accounts receivable would decrease by

$ $2\mathrm{.}6$$$2\mathrm{.}6$

$$million$,$ as would the book value of equity.

Part $5$

e$.$Global$\text{'}$s engineers discover a new manufacturing process that will cut the cost of its flagship product by more than

$51\%51\%.$

$($Select the best choice$$ below.$)$

A$.$

This event would decrease inventory by over

$51\%51\%$

and the book value of equity would increase by the same amount.

B$.$

This event would decrease inventory by over

$51\%51\%$

and the book value of equity would decrease by the same amount.

C$.$

This event would decrease inventory by over

$51\%51\%.$

D$.$

This event would not affect the balance sheet.

Part $6$

f$.$ A key competitor announces a radical new pricing policy that will drastically undercut$$ Global's prices.$($Select the best choice$$ below.$)$

A$.$

This event would decrease inventory.

B$.$

This event would decrease the book value of equity.

C$.$

This event would not affect the balance sheet.

D$.$

This event would affect the balance sheet in an unpredictable manner.

$))))))$

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