The following cash flow statement from Low-Down Industries is causing concern to its president,Ms.High-Flyer.She can’t understand why Low-Down is having trouble meeting its debt obligations on a timely basis. She is further concerned about the long-term prospects of the company, especially because last year’s net income was only $100,000.

Low-Down Industries Statement of Cash Flows (abbreviated)

For the year ended November 30, 1999 Net cash used by operating activities $(23,000)

Proceeds from sale of building 125,000 Purchase of equipment (47,000)

Net cash provided by investing activities 78,000 Dividends paid (31,000)

Payment on long-term note payable (90,000)

Net cash used by financing activities (121,000)

Decrease in cash $(66,000)

Required

a. Write a memo to Ms. High-Flyer addressing her concerns and your recommendations.

b. Assume that Low-Down Industries has no more land or buildings or other tangible assets to sell.Suppose also that Low-Down’s operations will not substantially change.

1. Prepare an approximate forecast of next year’s cash flows, assuming no other major changes.

2. Identify several viable strategies for Ms. High-Flyer to consider for future years in order to alleviate these potential cash shortages.