Based on your calculations, comment on whether or not you should take out the loan for $20,000. Be specific and explain your decision in detail! (this includes the calculations, why you chose them and

Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 1cM
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You will prepare the following for the
business described above: a) Income
Statement b) Statement of Cashflow (
direct method) Use the following
information to prepare the various
statements: 3. After the first three months
of doing business, you want to calculate
some ratios to see how your business is
doing. You are considering a loan in the
amount of $20,000 to upgrade your store/
office and you want to make sure that you
can afford the loan payments ($750 per
month for 3 years). Use the income
statement you created in part 2 of this
assignment and calculate at least two
ratios that can be calculated from an
income statement (Hint: not all ratios can
be calculated from an income statement!)
Based on your calculations, comment on
whether or not you should take out the
loan for $20,000. Be specific and explain
your decision in detail! (this includes the
calculations, why you chose them and
what they represent).
Use the following information to prepare the various statements:
Date
Transaction Description
1/1/2020 Cash deposit to start business
1/1/2020 Three month's rent for office/store space
1/1/2020 Investment in current asset
1/1/2020 Additional current assets paid for
1/31/2020 Receipts for sales in January 2020
2/7/2020 Material supplied in January paid for
2/25/2020 Cash withdrawn by owner(s)
2/29/2020 Receipts for sales in February 2020
3/15/2020 Material supplied in February paid for
3/16/2020 Utility charges for Jan, Feb, Mar 2020
3/31/2020 Receipts for sales March 2020
3/31/2020 Balance in bank on March 31st 2020
Receipts
$20,000.00
$ 8,500.00
$ 11,000.00
$ 18,000.00
$57,500.00
Payments
$ 2,400.00
$ 650.00
$ 8,500.00
$ 6,500.00
$ 15,000.00
$ 6,000.00
$ 300.00
$ 18,150.00
$57,500.00
Transcribed Image Text:You will prepare the following for the business described above: a) Income Statement b) Statement of Cashflow ( direct method) Use the following information to prepare the various statements: 3. After the first three months of doing business, you want to calculate some ratios to see how your business is doing. You are considering a loan in the amount of $20,000 to upgrade your store/ office and you want to make sure that you can afford the loan payments ($750 per month for 3 years). Use the income statement you created in part 2 of this assignment and calculate at least two ratios that can be calculated from an income statement (Hint: not all ratios can be calculated from an income statement!) Based on your calculations, comment on whether or not you should take out the loan for $20,000. Be specific and explain your decision in detail! (this includes the calculations, why you chose them and what they represent). Use the following information to prepare the various statements: Date Transaction Description 1/1/2020 Cash deposit to start business 1/1/2020 Three month's rent for office/store space 1/1/2020 Investment in current asset 1/1/2020 Additional current assets paid for 1/31/2020 Receipts for sales in January 2020 2/7/2020 Material supplied in January paid for 2/25/2020 Cash withdrawn by owner(s) 2/29/2020 Receipts for sales in February 2020 3/15/2020 Material supplied in February paid for 3/16/2020 Utility charges for Jan, Feb, Mar 2020 3/31/2020 Receipts for sales March 2020 3/31/2020 Balance in bank on March 31st 2020 Receipts $20,000.00 $ 8,500.00 $ 11,000.00 $ 18,000.00 $57,500.00 Payments $ 2,400.00 $ 650.00 $ 8,500.00 $ 6,500.00 $ 15,000.00 $ 6,000.00 $ 300.00 $ 18,150.00 $57,500.00
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