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Date Posted: 06:04:08 06/15/01 Fri
Author: jamie k
Subject: questions from chapters 1&2

I had a few questions from chapts. 1&2...

1. On pg. 40, item #3, the book states "if payables increase, the firm has received additional credit from its suppliers, which saved cash..." While I agree with this statement, isn't this usually just a temporary situation? Since these debts will have to be paid shortly, the cash is going to have to decrease too. Why is this an advantage?

2. In your slide show for Chapter 2, you use RHS and LHS when talking about increases and decreases in cash flow. What do these acronyms stand for?

3. The book (don't have the exact page...sorry) states that equity never needs to be "paid off". Can you comment on this and explain why?


4. Perhaps we will get to this later, but why would a company buy back shares? Is it to raise the price of the outstanding shares?


5. Why is it bad for companies to keep Retained Earnings in a cash form? I would think that keeping some amount of RE in liquid assets would be beneficial in case the company experiences a period of financial difficulty in the future. What are your thoughts?

Thanks,

Jamie

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