Assignment Answer the following questions about the scenario presented above. Answers should be professional and use correct spelling, grammar, and punctuation. 1. If her estimates are correct, what will be the firm's current ratio and debt ration?
Assignment Answer the following questions about the scenario presented above. Answers should be professional and use correct spelling, grammar, and punctuation. 1. If her estimates are correct, what will be the firm's current ratio and debt ration?
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
Problem 1PS
Related questions
Question
100%
Transcribed Image Text:Assignment
Answer the following questions about the scenario
presented above. Answers should be professional and use
correct spelling, grammar, and punctuation.
1. If her estimates are correct, what will be the firm's
current ratio and debt ration?
2. Explain the meaning of these ratios.
?
Transcribed Image Text:Scenario
Karen Lamont is in the process of starting a new business
and wants to forecast the first year's income statement and
balance sheet. She has made several assumptions, which are
shown below:
• Lamont has projected the firm's sales will be
$1 million in the first year.
• She believes that the operating and gross
●
profit margins will be 20 percent and 50
percent, respectively.
For working capital, Lamont has estimated the
following:
Accounts receivable as a percentage of
sales: 12%
• Inventory as a percentage of sales: 15%
Accounts payable as a percentage of
sales: 7%
●
• Accruals as a percentage of sales: 5%
• A bank has agreed to loan her $300,000,
consisting of $100,000 in short-term debt and
$200,000 in long-term debt. Both loans will
have an 8 percent interest rate.
• The firm's tax rate will be 30 percent.
●
●
• Lamont will need to purchase $350,000 in
plant and equipment.
Lamont will keep cash in the business that is equal to 5% of
sales. Lamont will provide any other financing needed.
Expert Solution
Step 1
Income Statement : It is a part of financial statement of a company in which revenue and expenses are presented. It measures the financial performance of the company, if the revenue exceeds the expense then the resulted figure is profit and if expenses exceeds the revenue then the resulted figure is loss.
Balance Sheet - It is the summary statement which shows the financial position of the company, it reflects the balance of Asset, Liability and Capital. and we know the balance sheet is based on the concept of accounting equation i.e. Assets = Liability + Capital
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education