eBook Problem 9-16 A firm’s balance sheets for the last two years are as follows: YEAR 20X1 Assets Liabilities and Equity Cash $ 24,000 Accounts payable $ 10,000 Accruals 14,000 Accounts receivable 18,000 Current bank note 7,000 Inventory 17,000 Long-term debt 40,000 Plant and equipment 41,000 Common stock 10,000 Retained earnings 19,000 $ 100,000 $ 100,000 YEAR 20X2 Assets Liabilities and Equity Cash $ 23,000 Accounts payable $ 10,000 Accruals 13,000 Accounts receivable 19,000 Current bank note 8,000 Inventory 17,000 Long-term debt 29,000 Plant and equipment 41,000 Common stock 15,000 Retained earnings 25,000 $ 100,000 $ 100,000 Sales in 20X1 were $175,000. Sales in 20X2 were $175,000. Based solely on the current ratio and the quick ratio, has the firm’s liquidity position deteriorated or improved? Round your answers to two decimal places. Current ratios: 20x1: 20x2: Quick ratios: 20x1: 20x2: The firm’s liquidity position has . Without doing a calculation, has days sales outstanding (receivables turnover) improved? Days sale outstanding has . Without doing a calculation, has inventory turnover deteriorated?
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
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eBook
Problem 9-16 A firm’s
Sales in 20X1 were $175,000. Sales in 20X2 were $175,000.
Current ratios: 20x1: 20x2: Quick ratios: 20x1: 20x2: The firm’s liquidity position has .
Days sale outstanding has .
Inventory turnover has .
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The effectiveness or convenience with where assets or securities may be turned into immediate cash without influencing its market rate is referred to as liquidity. Cash is perhaps the most liquid of all assets.
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