Problem 10-13 Consider the following data for three different companies: ($000 O

Question

Problem 10-13 Consider the following data for three different companies:

($000 Omitted)                                          Owens                 Arrow                   Alpha

Net cash provided (used) by:

Operating activities                                   $(2,000)             $2,700               $(3,000)

Investing activities                                       (6,000)               (600)                    (400)

Financing activities                                        9,000                (400)                (2,600)

Net increase (decrease) in cash                 $ 1,000               $1,700             $(6,000)

The patterns of cash flows for these firms differ. One firm is a growth firm that is expanding rapidly, another firm is in danger of bankruptcy, while another firm is an older firm that is expanding slowly.

Required Select the growth firm, the firm in danger of bankruptcy, and the firm that is the older firm expanding slowly. Explain your selection.

Explanation / Answer

Owens is the growth firm as growth firms requires investments and owens has high investment expense.

Alpha is the bankrupt firm as it is having huge negative operating cashflows

Arrow is the firm growing slowly and is older since it has positive operating cash flows and low investing cash outflows as older firms have lower capex

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