Jay Oullette, CEO of Bumper to Bumper Inc., anticipates that his company's year-end balance sheet will show current assets of $12,666 and current liabilities of $7,560. Oullette has asked your advice concerning a possible early payment of $3,790 of accounts payable before year-end, even though payment isn't due until later. Required: Calculate the firm’s working capital and current ratio under each situation. Assume that Bumper to Bumper had negotiated a short-term bank loan of $6,000 that can be drawn down either before or after the end of the year. Calculate working capital and the current ratio at year-end under each situation, assuming that early payment of accounts payable is not made. When would you recommend that the loan be taken?
Jay Oullette, CEO of Bumper to Bumper Inc., anticipates that his company's year-end balance sheet will show current assets of $12,666 and current liabilities of $7,560. Oullette has asked your advice concerning a possible early payment of $3,790 of accounts payable before year-end, even though payment isn't due until later. Required: Calculate the firm’s working capital and current ratio under each situation. Assume that Bumper to Bumper had negotiated a short-term bank loan of $6,000 that can be drawn down either before or after the end of the year. Calculate working capital and the current ratio at year-end under each situation, assuming that early payment of accounts payable is not made. When would you recommend that the loan be taken?
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
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Exercise 3-15 (Algo) Effect of transactions on working capital and current ratio LO 6
Jay Oullette, CEO of Bumper to Bumper Inc., anticipates that his company's year-end
Required:
- Calculate the firm’s working capital and current ratio under each situation.
- Assume that Bumper to Bumper had negotiated a short-term bank loan of $6,000 that can be drawn down either before or after the end of the year. Calculate working capital and the current ratio at year-end under each situation, assuming that early payment of accounts payable is not made. When would you recommend that the loan be taken?
Transcribed Image Text:Required A
Required B1
Required B2
Calculate the firm's working capital and current ratio under each situation. (Round "Current ratio" answers to 1 decimal
place.)
Do Not Prepay
Accounts Payable Accounts Payable
Prepay
Working capital
Current ratio
Transcribed Image Text:Assume that Bumper to Bumper had negotiated a short-term bank loan of $6,000 that can be drawn down either before or
after the end of the year. Calculate working capital and the current ratio at year-end under each situation, assuming that early
payment of accounts payable is not made. (Round "Current ratio" answers to 1 decimal place.)
Without Loan
With Loan
Working capital
Current ratio
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