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QUESTION 6 Balance sheet as of end of 2005 Balance sheet as of end of 2006 Cash $5 Current Liab $5 Cash $10 Current Liab

QUESTION 6

  1. Balance sheet as of end of 2005 Balance sheet as of end of 2006
    Cash $5 Current Liab $5 Cash $10 Current Liab $5
    A/R $5 Long Term Debt $15 A/R $5 Long Term Debt $25
    Common Stock $20 Common Stock $15
    PP&E $40 R/E $10 PP&E $40 R/E $10
    Assets $50 Total $50 Assets $55 Total $55
    Income statement for 2006
    Sales $100
    Costs 80
    Depreciation 5
    Interest 5
    Net Income $10
    Dividends = $10; R/E=$0

    What type of transaction the firm was involved in 2006?

    I. The firm borrowed more, and was involved in new equity (share) issuance.

    II. The firm borrowed more and used some of its proceeds from borrowing to repurchase equity shares.

    III. The firm borrowed more and put all proceeds from borrowing on the firm's cash account.

    Ionly

    II only

    I and III only

    I and II only

    All of the above

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