EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 3, Problem 20P

a)

Summary Introduction

To discuss: The impact when firm reduces its inventories by $500,000 and invests in marketable securities.

a)

Expert Solution
Check Mark

Explanation of Solution

Calculation of Current ratio, Quick ratio and Debt-to-equity ratio:

Current ratio=Current assetsCurrent liabilities=$5,750$3,000=1.92(Nochange)

Quick ratio=Current assetsInventoriesCurrent liabilities=$5,750$2,000$3,000=1.25(Increase)

Debt-to-equity ratio=TotaldebtTotalequity=$4,750$6,000=0.79(Nochange)

b)

Summary Introduction

To discuss: The impact, when firm purchases 20 new trucks with $500,000 paying through by selling the marketable securities.

b)

Expert Solution
Check Mark

Explanation of Solution

Calculation of Current ratio, Quick ratio and Debt-to-equity ratio:

Current ratio=Current assetsCurrent liabilities=$5,250$3,000=1.75(Decrease)

Quick ratio=Current assetsInventoriesCurrent liabilities=$5,250$2,500$3,000=0.92(Decrease)

Debt-to-equity ratio=TotaldebtTotalequity=$4,750$6,000=0.79(Nochange)

c)

Summary Introduction

To discuss: The impact, when firm borrows the amount of $500,000 from bank as a short-term loan and invests on inventory.

c)

Expert Solution
Check Mark

Explanation of Solution

Calculation of Current ratio, Quick ratio and Debt-to-equity ratio:

Current ratio=Current assetsCurrent liabilities=$6,250$3,500=1.79(Decrease)

Quick ratio=Current assetsInventoriesCurrent liabilities=$6,250$3,000$3,500=0.93(Decrease)

Debt-to-equity ratio=TotaldebtTotalequity=$5,250$6,000=0.88(Increase)

d)

Summary Introduction

To discuss: The impact, when company borrows the amount of $2,000,000 from bank as a five-year loan and has invested to expand its plant.

d)

Expert Solution
Check Mark

Explanation of Solution

Calculation of Current ratio, Quick ratio and Debt-to-equity ratio:

Current ratio=Current assetsCurrent liabilities=$5,750$3,000=1.92(Nochange)

Quick ratio=Current assetsInventoriesCurrent liabilities=$5,750$2,500$3,000=1.08(No change)

Debt-to-equity ratio=TotaldebtTotalequity=$6,750$6,000=1.13(Increase)

e)

Summary Introduction

To discuss: The impact, when company sale its common stock amounted to $2,000,000 and used the proceeds to expand its plant.

e)

Expert Solution
Check Mark

Explanation of Solution

Calculation of Current ratio, Quick ratio and Debt-to-equity ratio:

Current ratio=Current assetsCurrent liabilities=$5,750$3,000=1.92(Nochange)

Quick ratio=Current assetsInventoriesCurrent liabilities=$5,750$2,500$3,000=1.08(No change)

Debt-to-equity ratio=TotaldebtTotalequity=$4,750$8,000=0.59(Decrease)

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