Problem
Determine how each payout level affects the need for additional funds by 2020. The total cash-flow figures (for 2016 to 2020) in the right-hand column of case Exhibit 26.8 are used in this simplified approach. Use the basic identity for sources and uses of funds, as shown in case Exhibit 16.8, to determine the amount of new debt. What effects do various payout levels have on Rockboro's capital structure and capacity for unused debt?
Exhibit 16.8 Exhibit 26,8 Increase in assets Depreciation New debt Initial debt (2014) Ending debt (2021) 120.4 120.4 120.4 120.4 Exhibit 26,2 423.8 423.8 423.8 Exhibit 26.2 Initial equity (2014) 423.8 Earnings retained Ending equity (2021) Total capital (2021) Debt/Equity (2021) Debt capacity Max debt equity = 30% Debt capacity used Unused debt capacity 3. How will Rockboro's various capital providers, such as its stockholders and debtholders, react to a declaration of no dividend, given the signaling and customer considerations? What about the 30 percent payout that was announced? 328 Management of the Fifth Part.
I. A company is facing a lawsuit that could result in significant damages. How should the company account for this potential loss in its financial statements?
II. A company has a significant amount of inventory that is outdated and unsellable. How should the company account for this inventory on its financial statements?
III. A company has a large amount of outstanding accounts receivable that it does not expect to collect. How should the company account for these accounts receivable on its financial statements?
IV. A company has a significant amount of debt that it is struggling to pay off. How should the company account for this debt on its financial statements?
V. A company has discovered that its financial statements from the previous year contained a significant error. How should the company correct this error on its financial statements for the current year?
VI. A company is considering acquiring another company. How should the company account for this potential acquisition on its financial statements?
VII. A company is facing a shortage of cash and is considering selling some of its assets to generate cash. How should the company account for these asset sales on its financial statements?
VIII. A company has been accused of fraud and is being investigated by regulatory authorities. How should the company account for the potential fines or penalties that may result from this investigation on its financial statements?
IX. A company has a significant amount of goodwill on its balance sheet. How should the company account for any potential impairment of this goodwill on its financial statements?
X. A company is facing a potential tax liability due to a change in tax laws. How should the company account for this potential liability on its financial statements?