Hi Guys - just wanted to clarify something please, help appreciated!
In the CFAI book, there is this question (page 414, Reading 21):
Total assets: 3,610,600 / Total equity: 976,500
The company sold 267.5m of receivables to an SPE.
Compared to holding these receivables on the balance sheet, treating them as sold reduced leverage by?
The answer is given as 6.8% (3.7/3.97-1). It says assets would be increased by 276.5m with the receivables on the balance sheet. But what about cash? If they sell the receivables don’t we increase cash and therefore surely assets would stay the same (apart from the reduction from receiving less cash than the value of the recevables due to credit risk)? If we add back the receivables wouldn’t we reduce cash as well, keeping assets roughly the same?