Questions: There are 4 questions. Show your work in arriving at your answers. Assume RAH uses these statements for both financial reporting and tax purposes and that it sold no assets during 2015. Compute the cash flows for 2015 using

(1) the financial statement of cash flows with notes payable as financing liability (i.e., included in the concept of Net Operating Working Capital)

(2) the accounting statement of cash flows, also with notes payable as financing liability, as above.

(3) Write a paragraph describing RAHs underlying activities as depicted in the two statements above. Did assets grow or shrink? If assets grew, where did the funds come from? If assets shrank, where did the money go?

(4) Assume that at the end of 2015 RAH is now operating at full capacity, and that its profitability, asset usage and dividend policy are well represented by the 2015 financial statements. How fast can RAH grow if it seeks no more external financing (debt or equity) but maintains its dividend policy? (State as a percentage to 1 decimal point.)

(5) Under the same assumptions as (4), how fast can RAH grow if it only seeks additional debt financing in the amount necessary to keep its debt/equity ratio constant?

Purpose: To provide specific practice in computing the actual cash flows contained in standard accounting statements. In this problem we look at two different ways to state cash flows: the financial statement of cash flows and the accounting statement of cash flows. We will use the concept of New operating Working Capital (vs. Net Working Capital) as described in the Module 03a slides). RAH Industries has the following financial statements for 2014 and 2015. RAH's stock has no par value. The firm paid a dividend in 2015 of $500 million. Long-term debt of$150 million was retired in 2015. RAH also issued stock and long-term debt in 2015. Balance Sheet as of December 31, 2014 (Smillions) Cash 3,790 Accounts Payable 2,819 Accounts Receivable 5,192 Notes Payable 3,916 5,083 Current Liabilities Inventory 6,735 14,065 Current Assets Gross Fixed Assets 36,000 Less: Accumulated Depr. 9,880 Long-term Debt 9,078 26,120 Net Fixed Assets Common Stock 10,462 Less Treasury stock 1,000 Retained Earnings 14,910 Total owners' equity 24,372 Total Assets 40,185 Total Liabilities and Equity 40,185