**Question:**If a company sells additional common stock and uses the proceeds to increase its inventory level and to increase its cash balances, what is the near-term (immediate) impact (increase, decrease, no change) of this transaction on the following ratios?a. The current ratio will [Select: increase, decrease, no change].b. The return on stockholders' equity will [Select: increase, decrease, no change].c. The quick ratio will [Select: increase, decrease, no change].d. The debt to total assets ratio will [Select: increase, decrease, no change].e. The total asset turnover ratio will [Select: increase, decrease, no change].**Explanation:** For each part, select the appropriate option from the dropdown menu (increase, decrease, or no change) to determine how the sale of additional common stock affects each financial ratio.

The current ratio is the short term obligation of a company which is paid from its current assets. The return on stockholder's equity is the return which is generated for the benefit of common stockholders. The quick ratio tells the short term obligation which can be paid from its current assets except for prepaid assets and without selling its inventory. Current ratio - This ratio will increase because inventory and cash is increasing which come under current assets and it will lead to a rise in the numerator and denominator being same because current ratio can be found out by dividing the current asset by current liability. The return on stockholders equity - This ratio will not have any change Quick ratio - This ratio can be calculated as Quick assets divided by current liabilities. This ratio will rise because cash will increase which comes under quick assets leading to rise in numerator and denominator being the same. As per company policy it is only possible to solve the first three sub parts.

Answered: a. The current ratio will -Select-…

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a. The current ratio will -Select- -Select- b. The return on stockhd increase vill -Select- decrease c. The quick ratio will no change

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

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Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

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