(a) The firm earns 5% on current assets and 15% on fixed assets. The firm's current liabilities cost 7% to maintain and the average annual cost of long-term funds is 20 %. Flum Packages, Inc.Current assets RM10,000 Current Liabilities RM5,000Fixed assets RM20,000 Long-term debt RM12,000 Equity RM13,000Total RM30,000 Total RM30,000(i) Calculate the firm's initial net working capital. (ii) Calculate the firm's initial ratio of current assets to total assets. b. Critically evaluate THREE (3) advantages of commercial paper that usually used by the largest and most credit-worthy companies.

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Answered: (a) The firm earns 5% on current assets…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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(a) The firm earns 5% on current assets and 15% on fixed assets. The firm's current liabilities cost 7% to maintain and the average annual cost of long-term funds is 20 %.

Flum Packages, Inc.
Current assets	RM10,000	Current Liabilities	RM5,000
Fixed assets	RM20,000	Long-term debt	RM12,000
		Equity	RM13,000
Total	RM30,000	Total	RM30,000

(i) Calculate the firm's initial net working capital.

(ii) Calculate the firm's initial ratio of current assets to total assets.

b. Critically evaluate THREE (3) advantages of commercial paper that usually used by the largest and most credit-worthy companies.

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