CHAPTER FOUR BASIC PROBLEMS

Answer 1:
Beginning cash: $100,000
Change in sales: $1,000,000 - $500,000
: $500,000
Asset Buildup is 50% of sale: 50% of $500,000
: $250,000
Profit is 9% of Total Sales: 9% of $1,000,000
: $90,000
Ending Cash Balance or deficit: Beginning cash Asset buildup + profit
: $100,000-$250,000+$90,000
: $60,000
Thus, ending deficit is $60,000
Optimistic look for the cash position is not correct as the ending cash balance will be in
deficit.

Answer 2:
Beginning cash: $100,000
Sales: $500,000 (No change in sales)
Profit is 9% of Total Sales: 9% of $500,000
: $45,000
Ending Cash Balance or deficit: Beginning cash + profit
: $100,000+$45,000
: $145,000
Thus, the ending cash balance is $145,000.
The lesson to be learned is that increased sales can increase the financing requirements
and reduce cash even for a profitable firm.

Answer 3:
Alliance Corporation
(1)
Outcome
A
B
C

(2)
Probability
.30
.50
.20

(3)

(4)

(5)

Total
Units
Price
Value
200
$15
$3,000
320
$30
9,600
410
$40
16,400
Total expected value

(6)
Expected
Value
(2 5)
900
4,800
3,280
$8,980