a)
To discuss: The impact when firm reduces its inventories by $500,000 and invests in marketable securities.
a)
Explanation of Solution
Calculation of Current ratio, Quick ratio and Debt-to-equity ratio:
b)
To discuss: The impact, when firm purchases 20 new trucks with $500,000 paying through by selling the marketable securities.
b)
Explanation of Solution
Calculation of Current ratio, Quick ratio and Debt-to-equity ratio:
c)
To discuss: The impact, when firm borrows the amount of $500,000 from bank as a short-term loan and invests on inventory.
c)
Explanation of Solution
Calculation of Current ratio, Quick ratio and Debt-to-equity ratio:
d)
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)
Explanation of Solution
Calculation of Current ratio, Quick ratio and Debt-to-equity ratio:
e)
To discuss: The impact, when company sale its common stock amounted to $2,000,000 and used the proceeds to expand its plant.
e)
Explanation of Solution
Calculation of Current ratio, Quick ratio and Debt-to-equity ratio:
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Chapter 3 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
- Using the Du Pont method, evaluate the effects of the following relationships for the Butters Corporation. a. Butters Corporation has a profit margin of 5 percent and its return on assets (investment) is 22.5 percent. What is its assets turnover? (Round your answer to 2 decimal places.) b. If the Butters Corporation has a debt-to-total-assets ratio of 55.00 percent, what would the firm's return on equity be? (Input your answer as a percent rounded to 2 decimal places.) c. What would happen to return on equity if the debt-to-total-assets ratio decreased to 50.00 percent? (Input your answer as a percent rounded to 2 decimal places.)arrow_forwardUsing the DuPont method, evaluate the effects of the following relationships for the Butters Corporation. A.Butters Corporation has a profit margin of 5.5 percent and its return on assets (investment) is 8.75 percent. What is its assets turnover? Round your answer to 2 decimal places. ______ times B.If the Butters Corporation has a debt-to-total-assets ratio of 65.00 percent, what would the firm’s return on equity be? Note: Input your answer as a percent rounded to 2 decimal places. C.What would happen to return on equity if the debt-to-total-assets ratio decreased to 60.00 percent? Input your answer as a percent rounded to 2 decimal places.arrow_forwardYou have completed a first pass of a pro-forma balance sheet for Farmer Company. This reveals external financing need of $12 million. The pro-forma income statement shows a Net Income of $100 million and traditionally the firm has paid 40% of its earnings in the form of dividends (which is currently reflected in your pro-forma financials). What payout ratio would eliminate the external financing need of the firm?arrow_forward
- ) Indicate the immediate effects (increase, decrease, no effect) of each of the following independent transactions on (1) the rate of return on shareholders’ equity, (2) the current ratio, and (3) the liabilities to assets ratio. State any necessary assumptions. A firm purchases, on account, merchandise inventory costing $205,000. A firm sells for $150,000, on account, merchandise inventory costing $120,000. A firm collects $100,000 from customers on accounts receivable. A firm pays $160,000 to suppliers on accounts payable. A firm sells for $10,000 a machine costing $40,000 and with accumulated depreciation of $30,000. A firm declares dividends of $80,000. It will pay the dividends during the next accounting period. A firm issues common stock for $75,000. A firm acquires a machine costing $60,000. It gives $10,000 cash and signs a note for $50,000 payable five years from now for the balance of the purchase price.arrow_forwardFor fiscal year 2021, Costco Wholesale Corporation ( COST) had a net profit margin of 2.60%, asset turnover of 3.24, and a book equity multiplier of 3.28. a. Use this data to compute Costco's ROE using the DuPont Identity. b. If Costco's managers wanted to increase its ROE by 1.10 percentage points, how much higher would their new asset turnover need to be? c. If Costco's net profit margin fell by 1.10 percentage points, by how much would their asset turnover need to increase to maintain their ROE? a. Use this data to compute Costco's ROE using the DuPont Identity. Costco's ROE is %. (Round to two decimal places.) If Costco's net profit margin fell by 1.05 percentage points, by how much would their asset turnover need to increase to maintain their ROE?arrow_forwardThe liabilities and owners’ equity for Campbell Industries is found here. What percentage of the firm’s assets does the firm now finance using debt (liabilities)? If Campbell were to purchase a new warehouse for $1.4 million and finance it entirely with long-term debt, what would be the firm’s new debt ratio?arrow_forward
- you have developed the following pro forma income statement for your? corporation: it represents the most recent? year’s operations, which ended yesterday. a.if sales should increase by 25 ?percent, by what percent would earnings before interest and taxes and net income? increase? b.if sales should decrease by 25 ?percent, by what percent would earnings before interest and taxes and net income? decrease? q c.if the firm were to reduce its reliance on debt financing such that interest expense were cut in? half, how would this affect your answers to parts a and b?? sales $ 45,750,000 variable costs -22,800,000 revenue before fixed costs $ 22,950,000 fixed costs -9,200,000 ebit $ 13,750,000 interest expense -1,350,000 earnings before taxes $ 12,400,000 taxes (50%) -6,200,000 net income $ 6,200,000arrow_forwardGeneral Accountingarrow_forwardA company has the following items for the fiscal year 2020: Total Equity = 15 million Total Assets = 30 million EBIT = 4 million Interest expense = 1 million Calculate the company’s equity multiplier and interest coverage ratio Write the formula for the following ratios and what each ratio measures: Asset turnover Inventory Turnover and Days Inventory Receivable Collection Period Write down the DuPont framework. How would you explain to your non-MBA non-Finance friend about the DuPont framework and why it is important? A company has the following items for the fiscal year 2020: Revenue = 10 million EBIT = 4 million Net income = 2 million Total Equity = 15 million Total Assets = 30 million Calculate the company’s net profit margin, asset turnover, equity multiplier and ROE Explain cash conversion cycle and why it is important to companies? Is it possible that a company has a negative cash cycle? Is it a good thing or a bad thing? A company has days of inventory 80…arrow_forward
- How do I solve this?arrow_forwardUse the following information to find the external financing needed (EFN): Current sales: $6,000; Current costs: $4,000; Total Assets: $20,000; Total Debt: $8,000; Total equity: $12,000; Projected sales: $9,600. Total assets and costs are proportional to sales. The firm does not plan to distribute any dividends. The level of debt and equity is independent of the level of salesarrow_forwardSolve this questionarrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT