"Juana del Pueblo" is preparing for a meeting with the president of Banco Impopular to discuss the operating performance of its business, which is completing its fourth year of operations. In the first year, cash flow from operating activities was negative. In the second and third years, cash flows from operations were positive. However, in year 4, inventory costs increased significantly and cash flows from operations will likely be reduced by 25%.

The purpose of the meeting with the bank president is to secure a contingency line of credit for the business. From experience, Juana knows that the banker will evaluate cash flows from operating activities for years 1 through 4 and request projections for year 5. She also recognizes that steady growth in operating cash flows for years 1 through 4 will be beneficial to the line of credit request. Therefore, it decides to use its proprietary position and is considering several business actions that will change, from a decrease to an increase, in cash flow from operating activities in Year 4.

Required:

1. Explain three business actions that Juana del Pueblo could take to improve cash flows from operating activities and gain approval for the line of credit (3 points).

2. Comment on the ethical consequences that could impact Juana del Pueblo's decisions if it takes the previously mentioned actions.(4 points).

3. Explain why the banker emphasizes the operating activities on the Statement of Cash Flows, to grant the line of credit instead of analyzing the investing and

financing activities ( 3 points)