Dynamic Mattress: How Transactions Affect Cash and Net Working Capital
Working Capital Management. Indicate how each of the following six different transactions that Dynamic Mattress might make would affect (i) cash and (ii) net working capital:
a. Paying out a $2 million cash dividend.
b. A customer paying a $2,500 bill resulting from a previous sale.
c. Paying $5,000 previously owed to one of its suppliers.
d. Borrowing $1 million long-term and investing the proceeds in inventory.
e. Borrowing $1 million short-term and investing the proceeds in inventory.
f. Selling $5 million of marketable securities for cash.
In a table attached, the solution shows the increase, decrease or no change for cash and working capital for each item listed. The solution further adds notes for each transaction to indicate the rationale for the answer.
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