Why would Boeing want to keep its cash balance as low as possible? Why would they not want to keep a zero cash balance?
Chapter 3 Exercises 31, 32, and 35. E31 Recently Boeing has maintained a cash balance of over 6 billion. - At an annual inflation rate of about 2 percent, does cash have more or less purchasing power at the end of a given year than at the beginning? By how much? It would have less purchasing power. It would be 1.2 million dollars. - Is such a gain or loss reflected on the company's financial statements? Why or why not? This loss may not be clearly reflected on the company's financial statements. It may require one to take a closer look at the purchasing power and comparing the amount of items a company is able to purchase, the price of those items and comparing those to a prior year(s). It may also require considering the consumer price index as well. -Why would Boeing want to keep its cash balance as low as possible? Why doesn't the company reduce its cash balance to zero? Simply put, so it's not burning a hole in someone's pocket. Money sitting around makes very little investment income. So the cash balance would be low as a result of cash being tied up in acquisitions, investments, buying back stock, or due to deploying cash for financing operations. They would not want it to be zero because then their business would not look stable and often time's interest rates on loans are based upon the amount of cash a company has. If a company has a zero cash balance they may be at risk when it comes time to trying to obtain a loan because there may be harsher terms and conditions as well as a higher interest rate. Also, in case of an emergency, it is beneficial for a company to have cash readily available. E31 Palomar Paper Products purchased land in 1993 for $15,000 cash. The company has held the land since that time. In 2011 Palomar purchased another tract of land for $15,000 cash. Assume that prices in general increased by 60% from 1993 to 2011. a. Assuming that Palomar made only these two land purchases, what dollar amount would appear in the land account on Palomar's balance sheet as of December 31, 2011. b. Palomar used $15,000 cash to make each land purchase. Would $15,000 in 1993 buy the same amount of goods and services as $15,000 in 2011? If not, how much more or less, and why? c. Explain how one could adjust the dollar amount reported in the land account as of December 31, 2011, if the stable dollar assumption were dropped. Chapter 3 Exercises 31, 32, and 35. E31 Recently Boeing has maintained a cash balance of over 6 billion. - At an annual inflation rate of about 2 percent, does cash have more or less purchasing power at the end of a given year than at the beginning? By how much? It would have less purchasing power. It would be 1.2 million dollars. - Is such a gain or loss reflected on the company's financial statements? Why or why not? This loss may not be clearly reflected on the company's financial statements. It may require one to take a closer look at the purchasing power and comparing the amount of items a company is able to purchase, the price of those items and comparing those to a prior year(s). It may also require considering the consumer price index as well. -Why would Boeing want to keep its cash balance as low as possible? Why doesn't the company reduce its cash balance to zero? Simply put, so it's not burning a hole in someone's pocket. Money sitting around makes very little investment income. So the cash balance would be low as a result of cash being tied up in acquisitions, investments, buying back stock, or due to deploying cash for financing operations. They would not want it to be zero because then their business would not look stable and often time's interest rates on loans are based upon the amount of cash a company has. If a company has a zero cash balance they may be at risk when it comes time to trying to obtain a loan because there may be harsher terms and conditions as well as a higher interest rate. Also, in case of an emergency, it is beneficial for a company to have cash readily available. E31 Palomar Paper Products purchased land in 1993 for $15,000 cash. The company has held the land since that time. In 2011 Palomar purchased another tract of land for $15,000 cash. Assume that prices in general increased by 60% from 1993 to 2011. a. Assuming that Palomar made only these two land purchases, what dollar amount would appear in the land account on Palomar's balance sheet as of December 31, 2011. b. Palomar used $15,000 cash to make each land purchase. Would $15,000 in 1993 buy the same amount of goods and services as $15,000 in 2011? If not, how much more or less, and why? c. Explain how one could adjust the dollar amount reported in the land account as of December 31, 2011, if the stable dollar assumption were dropped. Chapter 3 Exercises 31, 32, and 35. E31 Recently Boeing has maintained a cash balance of over 6 billion. - At an annual inflation rate of about 2 percent, does cash have more or less purchasing power at the end of a given year than at the beginning? By how much? It would have less purchasing power. It would be 1.2 million dollars. - Is such a gain or loss reflected on the company's financial statements? Why or why not? This loss may not be clearly reflected on the company's financial statements. It may require one to take a closer look at the purchasing power and comparing the amount of items a company is able to purchase, the price of those items and comparing those to a prior year(s). It may also require considering the consumer price index as well. -Why would Boeing want to keep its cash balance as low as possible? Why doesn't the company reduce its cash balance to zero? Simply put, so it's not burning a hole in someone's pocket. Money sitting around makes very little investment income. So the cash balance would be low as a result of cash being tied up in acquisitions, investments, buying back stock, or due to deploying cash for financing operations. They would not want it to be zero because then their business would not look stable and often time's interest rates on loans are based upon the amount of cash a company has. If a company has a zero cash balance they may be at risk when it comes time to trying to obtain a loan because there may be harsher terms and conditions as well as a higher interest rate. Also, in case of an emergency, it is beneficial for a company to have cash readily available. E31 Palomar Paper Products purchased land in 1993 for $15,000 cash. The company has held the land since that time. In 2011 Palomar purchased another tract of land for $15,000 cash. Assume that prices in general increased by 60% from 1993 to 2011. a. Assuming that Palomar made only these two land purchases, what dollar amount would appear in the land account on Palomar's balance sheet as of December 31, 2011. b. Palomar used $15,000 cash to make each land purchase. Would $15,000 in 1993 buy the same amount of goods and services as $15,000 in 2011? If not, how much more or less, and why? c. Explain how one could adjust the dollar amount reported in the land account as of December 31, 2011, if the stable dollar assumption were dropped
