Looking forward to next year, if Digby’s current cash balance is $17,478 (000) a

Question

Looking forward to next year, if Digby’s current cash balance is $17,478 (000) and cash flows from operations next period are unchanged from this period and Digby takes ONLY the following actions relating to cash flows from investing and financing activities:

Issues 100 (000) shares of stock at the current stock price
Issues $200 (000) of long-term debt
Pays $40 (000) in dividends

Which of the following activities will expose Digby to the most risk of needing an emergency loan? Select: 1 Sells $5,000 (000) of their Long-term assets Retires $20,000 (000) in long-term debt Liquidates the entire inventory Purchases assets at a cost of $15,000 (000) Looking forward to next year, if Digby’s current cash balance is $17,478 (000) and cash flows from operations next period are unchanged from this period and Digby takes ONLY the following actions relating to cash flows from investing and financing activities:

Issues 100 (000) shares of stock at the current stock price
Issues $200 (000) of long-term debt
Pays $40 (000) in dividends

Which of the following activities will expose Digby to the most risk of needing an emergency loan? Select: 1 Sells $5,000 (000) of their Long-term assets Retires $20,000 (000) in long-term debt Liquidates the entire inventory Purchases assets at a cost of $15,000 (000)

Explanation / Answer

Answer: "Retires $20,000 (000) in long-term debt", activity will expose Digby to the most risk of needing an emergency loan. This is because Digby do not have that much of liquidity.

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