Allison Corporation, accounting homework help

User Generated

yhyh125

Business Finance

Description

Open file below and read instructions carefully:

Basically, you will read question one (Case: 13.1) ONLY. Next, read ONLY the questions in number 2.

THEN, answer to the two discussions forums of classmates below on why you either agree or disagree with their answers based on information provided. You will find their answers below that you need to respond to located at the very bottom after reading the selection.

Unformatted Attachment Preview

You will read question one (Case: 13.1) ONLY. Next, read ONLY the questions in number 2. THEN, answer to the two discussions forums of classmates below on why you either agree or disagree with their answers based on information provided. You will find their answers below that you need to respond to located at the very bottom after reading the selection. Case 13.1, Another Look at Allison Corporation 1. This case is based on the statement of cash flows for Allison Corporation. Use this statement to evaluate the company's ability to continue paying the current level of dividends—$40,000 per year. The following information also is available: a. The net cash flows from operating activities shown in the statement are relatively normal for Allison Corporation. Net cash flows from operating activities have not varied by more than a few thousand dollars in any of the past three years. b. The net outflow for investing activities was unusually high because the company modernized its production facilities during the year. The normal investing cash outflow is about $45,000 per year, the amount required to replace existing plant assets as they are retired. Over the long run, marketable securities transactions and lending transactions have a very small impact on Allison's net cash flows from investing activities. c. The net cash flows from financing activities were unusually large in the current year because of the issuance of bonds payable and capital stock. These securities were issued to finance the modernization of the production facilities. In a typical year, financing activities include only short-term borrowing transactions and payments of dividends. 2. Two of your classmates have read question one above and answered question two. Now all you have to do is read the two questions below DON’T ANSWER THE QUESTIONS BELOW, but do comment on your classmates’ answers to the question below, which are located after these questions.  Based solely on the company's past performance, do you believe that the $40,000 annual dividend payments are secure? That is, does the company appear able to pay this amount in dividends every year without straining its cash position? Do you think it more likely that Allison Corporation will increase or decrease the amount of dividends that it pays? Explain fully.  Should any of the unusual events appearing in the statement of cash flows for the current year affect your analysis of the company's ability to pay future dividends? Explain. Here is what one classmate had to say, do you agree or disagree with his answer please shortly explain Reply to Gayon response to the questions above Based on the performance of the company, they would not be able to continue the dividends payout annually without the strain on the cash position of the company. The company actually needs to generate a positive cash flow from all operating activities of approximately $50,000. The company needs at least $45,000 to replace property, plant and equipment each year leaving the other $5,000 for dividends and other purposes. If they need to pay dividends of $40,000 each year then they are going to need to raise at least $35,000 from some kind of investing or financing activities. They are going to need to reduce its cash dividends in years to come because it will be very difficult in financing it through increased borrowing. The large amount of money that the company spend to purchase plant, property and equipment actually increases net operating cash flow above the levels of previous years. The company issued $100,000 bonds payable and 1000 shares. The interest on the new bonds payable will reduce cash flow from operations in the future. In addition to that, the shares capital mean that the dividend payments must be increased in order for the company to maintain the current level of dividends per share. The unusual investing activities will therefore improve the company's ability to continue its dividends only if the new plant and equipment will produce more cash than is needed to meet the increased interest and dividend requirement. Here is what another classmate had to say do you agree or disagree with her answer please shortly explain Now reply to Maria answer to same questions I don’t believe Allison Corporation is in the position to keep paying annual dividends of $40,000 without damaging cash flow. The company uses $ 45,000 to replace plant equipment. After that it’s left with $5,000 distribution of dividends. The company won’t be able to keep paying annual dividends. In order to keep up, the company will have to raise $35,000 to pay its dividends. They will also have to increase its cash flow and reduce cash dividends in the coming years. The two unusual factors were the large amount paid for plant equipment which will increase the operating cash flow. The second factor is the bonds and the shares of capital stock. Which interest will reduce cash flow and the share capital will increase dividends payment. The company can only pay the dividends if cash flow is generated from new assets is larger than increased interests and dividend requirements. I do think this will happen and believe the company will have a hard time paying these dividends.
Purchase answer to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Explanation & Answer

Good luck in your study and if you need any further help in your assignments, please let me know Can you please confirm if you have received the work? Once again, thanks for allowing me to help you R

Running Head: ALLISON CORPORATION

Allison Corporation

Name

Course

Institution

Instructor

Date

ALLISON CORPORATION

2
Gayon

I agree that the corporation is not in a position to pay that much in dividends. It is barely
m...


Anonymous
I use Studypool every time I need help studying, and it never disappoints.

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Related Tags