Barcelona Travel Inc. took out a 2-year loan in late December. Because the loan is for more than 1 year in length, it is not included in current liabilities even though the cash received from the loan is reported as a current asset. This results in improving current and quick ratios and a stronger looking year-end balance sheet. This action taken by Barcelona is an example of: window dressing. O trend analysis. O percent change analysis. O benchmarking.

Barcelona Travel Inc. took out a 2-year loan in late December. Because the loan is for more than 1 year in length, it is not included in current liabilities even though the cash received from the loan is reported as a current asset. This results in improving current and quick ratios and a stronger looking year-end balance sheet. This action taken by Barcelona is an example of: window dressing. O trend analysis. O percent change analysis. O benchmarking.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 8QE

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Similar questions

A company's current ratio is 2.0. Which of the following actions would lower the current ratio, assuming everything else remains the same? A) Borrow using short-term notes payable and use the proceeds to reduce long-term debt. B) Use cash to reduce accruals. C) Use cash to reduce accounts payable.
You have the following information about two firms, Debt Free, Incorporated and Debt Spree, Incorporated. Both firms have the same prospects for sales and EBIT, and both have the same level of assets, tax rate and borrowing rate. They differ in their use of debt financing. Scenario Bad year Normal year Good year Total assets Tax rate Debt Equity Borrowing rate Sales Interest expense for Debt Free Interest expense for Debt Spree $200 $275 $380 Debt Free $ 250 21% EBIT $12 $ 34 $ 51 $0 $ 250 16% Required: a. Calculate the interest expense for each firm: Debt Spree $ 250 21% $150 $ 100 16%
Which is not a benefit of debt to the corporation?a. interest payments are tax deductibleb. when debt is used heavily, it increases stock valuec. In periods of inflation, debt is paid back with amounts that are worth less than the ones borrowed.d. compared to equity, debts have a lower cost of capitale. answer not given
(b) Assume that: 1) the corporate tax rate is zero, 2) firms stop their business in one year, 3) earnings before interest and taxes in one year are expected to be worth EBIT, 4) the probability that the levered firm defaults in one year is p, 5) bankruptcy costs are worth BC, 6) face value of debt is F, and 7) coupon rate is also rB. Provide a formula for the cost of levered equity rs. The formula has to depend on: S, EBIT, p, BC, F, rB, and ro only.
Which of the following actions can a firm take to increase its current ratio? A. Issue short-term debt and use the proceeds to buy back long-term debt with a maturity of more than one year. B. Reduce the company's days sales outstanding to the industry average and use the resulting cash savings to purchase plant and equipment. C. Use cash to purchase additional inventory. D. Statements a and b are correct. E. None of the statements above is correct.
Which of the following is a disadvantage of long-term debt as a means of company financing? Group of answer choices Debtholders have preferential status in the event of a company being wound up. Tax relief is available on interest payments. Debt is often quicker to arrange compared to equity. The amount and timing of interest payments is predictable, making budgeting easier.
FAMA is considering issuing new common stock and using the proceeds to reduce its outstanding debt. The stock issue would have no effect on total assets, the interest rate FAMA pays, EBIT, or the tax rate. Which of the following is likely to occur if the company goes ahead with the stock issue? a. The times interest earned ratio will decrease. b. The ROA will decline. c. Taxable income will decrease. d. The tax bill will increase. e. Net income will decrease. Please explain answer.
TRUE OR FALSE: 1.A Financial Statement is not necessary for corporations over $10M in annual revenue. 2.It is possible to determine the future value (FV) of an investment deposit into fixed income security. 3. Investing in stock is a form of fixed income investing.
Which of the following statements is not correct? Select the correct response: The principal amount of a debt is the cash or cash equivalent amount borrowed The carrying amount of a noninterest-bearing note payable due in lump sum will decrease as time goes by When a noncash asset is acquired and the stated rate of interest is different from the current market rate of interest, the cost of the asset is the present value of the future cash payments discounted at the current market rate of interest rather than at the stated interest rate. A company that receives cash in an amount less than the face amount of a noninterest-bearing note payable should record the note at its discounted present value.
Consider a company with a Reddington Immune cash flow stream of assets and liabilities. The asset payments all occur before the liability payments. What can you say about the present value of the entire cash flow stream if the interest rate increases from its current rate? Select one: The new present value is negative. b. We cannot say anything about the sign of the new present value. The new present value is zero. d. The new present value is positive. a. C.
1. How much long-term debt will the company have to issue next year? 2. If the operations are not in full capacity, what will be your answer? Note that what is asked for is the AFN if the operation is not in full capacity. Since the capacity % used is not given, exclude the fixed asset in the computation of AFN, use the current asset balance only
Now it's time for you to practice what you've learned. Suppose that you are given the following data for Niles Company: Note: The data and calculations are based on a 365-day year. Cash and equivalents Fixed assets Sales Net income Current liabilities Current ratio DSO ROE Accounts receivable Current assets Total assets Fill in the table with the appropriate values. (Hint: Use the formulas you learned in the video and exercises in the previous stage of the problem.) $ ROA Common equity $ Quick ratio $787,500 $2,275,000 $8,750,000 $393,750 $840,000 $ $ 2.5 18.25 12.00% Fill in the table with the appropriate values. (Hint: Use the formulas you learned in the video and exercises in the previous stage of the problem.) Hint: Recall that Current Assets = Cash and Equivalents + Accounts Receivable + Inventories.