The Quarterly Cash Flows from Operations for Two Computer Companies

The quarterly cash flows from operations for two computer companies are as follows:
$\begin{array}{|l|l|l|l|l|l|}\hline \text { (in Millions) } & 2012 & 2012 & 0012 & 2012 & 2013 \\\hline & \mathrm{Q} 1 & \mathrm{Q} 2 & \mathrm{Q} 3 & \mathrm{Q} 4& \mathrm{Q} 1 \\\hline \text { Firm A } & \$ 406.1 & \$ 204.2 & \$ 729.1 & \$ 440.2 & \$ 587.8 \\\hline \text { Firm B } & \$ 136.7 & \$ 243.1 & \$ 708.2 & \$ 87.9( & \$ 161.4) \\\hline\end{array}$
Required:
1) Explain why Firm B has more credit risk than Firm
A.
2) Suppose that Firm B's cash flow was $200 million higher each quarter. Explain why Firm B might still be viewed as having higher credit risk than Firm

Correct Answer:

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