Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 4, Problem 5SP
Summary Introduction
To determine: Additional short term funding.
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The Mitchem marble Company has a target current ratio of 2.2 but has experienced some difficulties financing its expanding sales in the past few months. At present, the firm has a current ratio of 2.7 and current assets of $2.38 million. If Mitchem expands its receivable and inventories using its short-term line of credit, how much additional short-term funding can it borrow before its current ratio standard is reached?
(Liquidity analysis) The Mitchem Marble Company has a target current ratio of 2.1 but has experienced some
difficulties financing its expanding sales in the past few months. At present, the firm has a current ratio of 2.9 and
current assets of $2.81 million. If Mitchem expands its receivables and inventories using its short-term line
of credit, how much additional short-term funding can it borrow before its current ratio standard is reached?
The additional amount of receivables and inventories (short-term debt) is $
decimal places.)
million. (Round to two
The Mitchem Marble Company has a target current ratio of
2.1
but has experienced some difficulties financing its expanding sales in the past few months. At present, the firm has a current ratio of
2.8
and current assets of
$2.69
million. If Mitchem expands its receivables and inventories using its short-term line of credit, how much additional short-term funding can it borrow before its current ratio standard is reached?
Question content area bottom
Part 1
The additional amount of receivables and inventories (short-term debt) is
$enter your response here
million. (Round to two decimal places.)
Chapter 4 Solutions
Foundations Of Finance
Ch. 4 - Describe the five-question approach to using...Ch. 4 - What are the limitations of industry average...Ch. 4 - What is the difference between a firms gross...Ch. 4 - Prob. 9RQCh. 4 - Prob. 1SPCh. 4 - Prob. 2SPCh. 4 - Prob. 3SPCh. 4 - (Price/ book) Chang, Inc.s balance sheet shows a...Ch. 4 - Prob. 5SPCh. 4 - (Ratio analysis) The balance sheet and income...
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- (Related to Checkpoint 4.1) (Liquidity analysis) Airspot Motors, Inc. has $2,517,200 in current assets and $868,000 in current liabilities. The company's managers want to increase the firm's inventory, which will be financed using short-term debt. How much can the firm increase its inventory without its current ratio falling below 2.1 (assuming all other current assets and current liabilities remain constant)? Airspot Motors, Inc. could add up to $ in inventories. (Round to the nearest dollar.)arrow_forwardJem Jewelers has seasonal financing needs that vary from P250,000 to P2,725,000. The permanent financing requirement is P4,100,000. Indicate the appropriate strategy for each situation wheter it is AGGRESSIVE FINANCING or CONSERVATIVE FINANCING. a. Due to high inflation , short- term interest rates are much higher than long-term ratesb. Sales revenue is unpredictablec. The firm has large proportion of fixed assets in its total assetsd. The average seasonal financing need is P1,000,000e. The average seasonal financing nedd is P2,000,000arrow_forwardJefferson City Computers has developed a forecasting model to determine the additional funds it needs in the upcoming year. All else being equal, which of the following factors is likely to increase its additional funds needed (AFN)? A sharp increase in its forecasted sales and the company's fixed assets are at full capacity. A reduction in its dividend payout ratio. The company reduces its reliance on trade credit that sharply reduces, its accounts payable. Statements a and b are correct. Statements a and c are correct.arrow_forward
- Short-term financing means business financing from short-term sources, which are for less than one year. The same helps the company generate cash for working of the business and for operating expenses, which is usually for a smaller amount. It involves developing money by online loans, lines of credit, and invoice financing. The following information are given for SAS Inc: Sales is M1000 Million, Operating Income is 10% of Sales, Interest expense is expected to be RM10 Million, (ignore additional interest expense generated by additional borrowings in Year 9), Income Tax paid at 40% on operating income, Dividend pay-out ratio is 20% and company needs to increase in working capital and fixed assets at 5% and 10% of total Sales accordingly. Required: Calculate the amount of short-term external finance needs to borrow in next year by SAS Inc.?arrow_forward(Forecasting financing needs) Beason Manufacturing forecasts its sales next year to be $5.4 million and expects to earn 4.9 percent of that amount after taxes. The firm is currently in the process of projecting its financing needs and has made the following assumptions (projections): • Current assets are equal to 19.8 percent of sales, and fixed assets remain at their current level of $0.8 million. • Common equity is currently $0.78 million, and the firm pays out half of its after-tax earnings in dividends. The firm has short-term payables and trade credit that normally equal 11.8 percent of sales, and it has no long-term debt outstanding. What are Beason's financing needs for the coming year? Beason's expected net income for next year is $ (Round to the nearest dollar.)arrow_forwardExpected sales in the forthcoming year is $ 50,00. The firm plans to stick to the following policies towards the working capital; Debtors would be maintained at 30 days of sales, Creditors would be maintained at 30 days of cost of sales and Inventories would be maintained at 30 days of cost of sales. Assume that the firm wants to keep Working capital sufficient to finance Expected Credit Sales for the length of the Cash Cycle, how much working capital would the firm need? Consider 365 as the number of days in an year for you cycle calculations. (Select the option closest to the answer). 411 487 398 509 426 352arrow_forward
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