uestion #4 25 marks) a) For each of the following transactions: o indicate wheth

Question

uestion #4 25 marks) a) For each of the following transactions: o indicate whether it will result in an increase (+) decrease (), or have no effect (NE) on cash flows classify each of the transactions as an operating (O), investing(I), financing (F), or significant noncash investing financing (NC) activity or no effect (NE) o Classification Impact (t) () or (NE) (NC) or (NE) Repayment of mortgage payable Payment of interest on mortgage Purchase of land in exchange for common shares Issuc of preferred shares for cash Collection of accounts receivable Declaration of cash dividend Payment of cash dividend Cash purchase of inventory b) Selected information (CAD millions) are presented for two firms ROP and DUL, operating in the same industries: DUL ROH Net income Net cash provided by operating activities Net cash provided (used) by investing activities Net cash provided (used) by financing activities 4,529 6,539 (1,420) 735 S 161 212 35 (176) Net increase in cash and cash equivalents 5,854 S 71 Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Required: 2,078 7,932 S 267 S 338 o Compare and discuss the performance/ activity the two companies based on the above Cash Flow and Net Income information o Which company appears to be in a stronger Cash position? Why?

Explanation / Answer

a) Transactions Impact Classification Repayment of mortgage payable - F payment of interst on mortgage - O Purchase of land in exchange for common shares NE NC Issue of preferred stock for cash + F Collection of accounts receivable + O Declaration of cash dividend NE NE Payment of cash dividend - F Cash purchase of inventory - O b) For comparison purpose,Lets use operation index Operation index=Net cash from operations/Net income For DUL,Operation index=6539/4529=1.44 For ROH,Operation index=212/161=1.32 DUL company appears to be stronger since operation index is more for DUL compared to ROH.

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