Jordan Inc. has the following balance sheet and income statement data: Cash $ 14,000   Accounts payable $ 42,000 Receivables   70,000   Other current liabilities   28,000 Inventories   280,000   Total CL $ 70,000 Total CA $ 364,000   Long-term debt   140,000 Net fixed assets   126,000   Common equity   280,000 Total assets $ 490,000   Total liab. and equity $ 490,000   Sales $ 280,000         Net income $ 21,000         The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.15, without affecting either sales or net income. Assuming that inventories are sold off and not replaced to get the current ratio to the target level, and that the funds generated are used to buy back common stock at book value, by how much would the ROE change? Do not round your intermediate calculations.   a. 9.84 p.p.     b. 2.34 p.p.     c. 13.95 p.p.     d. 31.58 p.p.     e. 24.08 p.p.   The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.   Balance Sheet (Millions of $) 2021 Assets   Cash and securities   $ 4,200   Accounts receivable     17,500   Inventories     20,300   Total current assets   $ 42,000   Net plant and equipment     28,000   Total assets   $ 70,000     Liabilities and Equity   Accounts payable   $ 27,531   Accruals     12,369   Notes payable     5,000   Total current liabilities   $ 44,900   Long-term bonds     9,000   Total liabilities   $ 53,900   Common stock     3,864   Retained earnings     12,236   Total common equity   $ 16,100   Total liabilities and equity   $ 70,000     Income Statement (Millions of $) 2021 Net sales   $ 112,000   Operating costs except depreciation     104,160   Depreciation     2,240   Earnings before interest and taxes (EBIT)   $ 5,600   Less interest     840   Earnings before taxes (EBT)   $ 4,760   Taxes (25%)     1,190   Net income   $ 3,570     Other data:   Shares outstanding (millions)     500.00   Common dividends (millions of $)   $1,249.50   Int. rate on notes payable & L-T bonds     6%   Federal plus state income tax rate     25%   Year-end stock price     $85.68     What is the firm's current ratio? Do not round your intermediate calculations.   a. 0.54     b. 1.05     c. 0.48     d. 1.29     e. 0.94

Essentials Of Investments
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ISBN:9781260013924
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Chapter1: Investments: Background And Issues
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Jordan Inc. has the following balance sheet and income statement data:

Cash $ 14,000   Accounts payable $ 42,000
Receivables   70,000   Other current liabilities   28,000
Inventories   280,000   Total CL $ 70,000
Total CA $ 364,000   Long-term debt   140,000
Net fixed assets   126,000   Common equity   280,000
Total assets $ 490,000   Total liab. and equity $ 490,000
 
Sales $ 280,000        
Net income $ 21,000        

The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.15, without affecting either sales or net income. Assuming that inventories are sold off and not replaced to get the current ratio to the target level, and that the funds generated are used to buy back common stock at book value, by how much would the ROE change? Do not round your intermediate calculations.

  a. 9.84 p.p.  
  b. 2.34 p.p.  
  c. 13.95 p.p.  
  d. 31.58 p.p.  
  e. 24.08 p.p.

 

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

 

Balance Sheet (Millions of $) 2021
Assets  
Cash and securities   $ 4,200  
Accounts receivable     17,500  
Inventories     20,300  
Total current assets   $ 42,000  
Net plant and equipment     28,000  
Total assets   $ 70,000  
 
Liabilities and Equity  
Accounts payable   $ 27,531  
Accruals     12,369  
Notes payable     5,000  
Total current liabilities   $ 44,900  
Long-term bonds     9,000  
Total liabilities   $ 53,900  
Common stock     3,864  
Retained earnings     12,236  
Total common equity   $ 16,100  
Total liabilities and equity   $ 70,000  
 
Income Statement (Millions of $) 2021
Net sales   $ 112,000  
Operating costs except depreciation     104,160  
Depreciation     2,240  
Earnings before interest and taxes (EBIT)   $ 5,600  
Less interest     840  
Earnings before taxes (EBT)   $ 4,760  
Taxes (25%)     1,190  
Net income   $ 3,570  
 
Other data:  
Shares outstanding (millions)     500.00  
Common dividends (millions of $)   $1,249.50  
Int. rate on notes payable & L-T bonds     6%  
Federal plus state income tax rate     25%  
Year-end stock price     $85.68  

 

What is the firm's current ratio? Do not round your intermediate calculations.

  a. 0.54  
  b. 1.05  
  c. 0.48  
  d. 1.29  
  e. 0.94
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