Hills Department Stores has $54 million of current assets and $58 million of noncurrent assets. It forecasts an EBIT of $10.4 million and pays income taxes at a 35% rate. Short-term bank notes carry a 5% interest rate, and the company can issue long-term bonds at 7%. The company has set a target debt ratio of 45%. Required: A. For a maturity mix of 60% current and 40% long-term debt, prepare the company's abbreviated balance sheet. B. For a maturity mix of 60% current and 40% long-term debt, prepare the company's financial half of its income statement. C. Based on the financial statements above, calculate the return on equity ratio in order to evaluate the company's risk and return. D. Based on the financial statements above, calculate the current ratio in order to evaluate the company's risk and return. Please see attached spreadsheet and if you could please help me step by step by the information provided into the attached spreadsheet, I would be grateful.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Hills Department Stores has $54 million of current assets and $58 million of noncurrent assets. It forecasts
an EBIT of $10.4 million and pays income taxes at a 35% rate. Short-term bank notes carry a 5%
interest rate, and the company can issue long-term bonds at 7%. The company has set a target
debt ratio of 45%.

Required:

A. For a maturity mix of 60% current and 40% long-term debt, prepare the company's
abbreviated balance sheet.

B. For a maturity mix of 60% current and 40% long-term debt, prepare the company's
financial half of its income statement.

C. Based on the financial statements above, calculate the return on equity ratio in order to
evaluate the company's risk and return.

D. Based on the financial statements above, calculate the current ratio in order to evaluate
the company's risk and return.

Please see attached spreadsheet and if you could please help me step by step by the information provided into the attached spreadsheet, I would be grateful.

 

A Current assets
Noncurrent assets
Total Assets
Current liabilities
Long-term liabilities
Total debit
Stockholders' equity
Total liabilities & equity
B EBIT
Interest on current liabilities
Interest on noncurrent debt
Total interest
Earnings before taxes
Income taxes
Net income
C Net income
Stockholders' equity
Return on equity
D Current assets
Current liabilities
Return on equity
Transcribed Image Text:A Current assets Noncurrent assets Total Assets Current liabilities Long-term liabilities Total debit Stockholders' equity Total liabilities & equity B EBIT Interest on current liabilities Interest on noncurrent debt Total interest Earnings before taxes Income taxes Net income C Net income Stockholders' equity Return on equity D Current assets Current liabilities Return on equity
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I have a few questions...
For the interest on the long-term debt, the amount you have is not 7% of the balance in the long-term liability account. As you change that, please remember that change may change some of the calculations in Parts B, C, and D.

Thanks so much for your help!

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