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What would elis ending cash balance
Course:- Corporate Finance
Reference No.:- EM13881417




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QUESTION 1 :

(i) Eli Lilly is very excited because sales for his nursery and plant company are expected to double from $600,000 to $1,200,000 next year. Eli notes that net assets (Assets - Liabilities) will remain at 50 percent of sales. His firm will enjoy an 8 percent return on total sales. He will start the year with $120,000 in the bank and is bragging about the Jaguar and luxury townhouse he will buy. Does his optimistic outlook for his cash position appear to be correct? Compute his likely cash balance or deficit for the end of the year. Start with beginning cash and subtract the asset buildup (equal to 50 percent of the sales increase) and add in profit.

(ii) In problem 1 if there had been no increase in sales and all other facts were the same, what would Eli's ending cash balance be? What lesson do the examples in problems 1 and 2 illustrate?

QUESTION 2 :

Argue why the statement of cash flows provides useful information that goes beyond income statement and balance sheet data? Support your answer by applying examples and academic references.

QUESTION 3 :

Argue why are Treasury bills a favorite place for financial managers to invest excess cash, as compared to other options? Your answer must be supported with examples and academic citations.

QUESTION 4 :

Why does money have a time value? Your answer must be supported with examples and academic citations.

QUESTION 5 :

Discuss the relationship between bond prices and interest rates. What impact do changing interest rates have on the price of long-term bonds versus short-term bonds?

Your answer must be supported with examples and academic citations.

QUESTION 6 :

If common stockholders are the owners of the company, why do they have the last claim on assets and a residual claim on income? Your answer must be supported with examples and academic citations.

Requirement:
-Please answer 5 questions,
-The answers should be in paragraph style.

QUESTION 7 :

Why are institutional investors important in today's business world? Your answer must be supported with examples and academic citations.

Answered:-

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Financial statements helps in providing appropriate and critical information to all the stakeholders (internal and external) which is instrumental for decision making about the resource allocation. The three main financial statements typically produced by businesses are

(a) Statement of financial position (Balance Sheet) – This statement provides the financial strength of a company as on a particular date. It helps in identifying the net worth of the business along-with providing useful information about the company’s financial leverage, liquidity and asset management and is divided into three main sections – Assets, Liabilities and Equity
(b) Statement of financial performance (Income Statement) –This statement provides critical information about the financial sustainability of the business by stating the overall operational performance in terms of revenues, costs and profits for the company for a particular period
(c) Cash Flow Statement – Another important financial statement is the statement of cash flow which shows the details about the sources and application of funds by the business and is typically reported under three different sections – Operating activities, Financing activities and Investing activities

Though each of the above mentioned financial statement has its own importance and provides crucial information which is critical for decision making, the usefulness of the information provided by the cash flow statement goes beyond income statement and balance sheet data. The primary reason for this is – The income statement and balance sheet both are prepared under the accrual method of accounting which attempts to match the revenues and expenses in the financial period of its occurrence irrespective of the fact if it has actually been earned/received and paid




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