Reference no: EM132596592

(a) Why is the concept of Cash flows

(b) Why do accounting profits and operating cash flows  one of the central elements in corporation financial management? Explain the link between cash flows and shareholders wealth. 

differ? How can the two numbers be reconciled?

(c) Suppose your firm receives a sh. 12 Million Order on the last day of the year. You fill the Order with sh. 7 Million worth of inventory. The customer picks up the entire Order the same day and pays sh. 3 Million up front in cash. You also issue a bill / invoice for the customer to pay the remaining balance of sh. 9 Million (sh. 12 Million minus sh. 3 Million) within 30 days. Suppose your firm's tax rate is 0% (i.e. ignore taxes)

Required:

Determine the consequences of this transaction for each of the following:-

(i) Revenues

(ii) Earnings (Net Income)

(iii) Receivables

(iv) Inventory

(v) Cash

(d) Nebure Industries Company purchases a sh. 50 Million Cyclo-converter. The Cyclo-converter will be depreciated by sh. 5 Million per year over 10 years, starting this year. Suppose Nebure's tax rate is 30%.

Required:

(i) What impact will the cost of the purchase have on earnings for each of the next four years?

(ii) What impact will the cost of the purchase have on the firm's cash flows for the next four years?