(Liquidity Analysis) The King Carpet Company has $2,860,000 in cash and a total of $11,910,000 in current assets.down to $1,170,000 by paying $535,000 in cash to expand the firm's truck fleet and using $1,155,000 in cash to retireThe new current ratio is(Round to one decimal place.)The firm's current liabilities equal $5,760,000 such that the firm's current ratio equals 2.1. The company's managers want to reduce the firm's cash holdingsshort-term note. If they carry this plan through, what will happen to the firm's current ratio?C

Current ratio is one of the liquidity ratio being used in business. This helps in determining how…

(Liquidity Analysis) The King Carpet Company has $2,860,000 in cash and a total of $11,910,000 in current assets. The firm's current liabilities equal $5,760,000 such that the firm's current ratio equals 2.1. The company's managers want to reduce the firm's cash holdings down to $1,170,000 by paying $535,000 in cash to expand the firm's truck fleet and using $1,155,000 in cash to retire a short-term note. If they carry this plan through, what will happen to the firm's current ratio? The new current ratio is (Round to one decimal place.)

(Liquidity Analysis) The King Carpet Company has $2,860,000 in cash and a total of $11,910,000 in current assets. The firm's current liabilities equal $5,760,000 such that the firm's current ratio equals 2.1. The company's managers want to reduce the firm's cash holdings down to $1,170,000 by paying $535,000 in cash to expand the firm's truck fleet and using $1,155,000 in cash to retire a short-term note. If they carry this plan through, what will happen to the firm's current ratio? The new current ratio is (Round to one decimal place.)

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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Cash management is a very important function of managers. Companies need to manage their operations in a way that they can sustain growth and yet not run out of cash.Consider the case of the Red Hamster Manufacturing Corporation: Search tiRed Hamster Manufacturing Corporation has forecasted sales of $ 30,000,000 for next year and expects its cost of goods sold (COGS) to remain at 80% of sales. Currently, the firm holds $3,100,000 in inventories, $2,300,000 in accounts réceivable, and $2,500,000 in accounts payable.Approximately how long does it take Red Hamster Manufacturing to convert its raw materials to its finished products and then to sell those goods? (Note: Use 365 days as the length of a year in all calculations, and round all values to two decimal places.)
Banque du Langenberg holds $575 million interest producing assets earning a net interest margin (NIM) of 2.50%. The iniital net interest income is thus $14.375 million. The bank's President pursues a strategy of holding longer dated, higher risk assets while also increasing leverage and as a result the net interest margin expands by 25 basis points (or 10% on 2.50%) and the total asset base increases by 20%. What is the new net interest income? Original scenario Net interest margin Total assets (millions) 1.00% $2 Rise in nim 3.0% Rise in total assets 3.0% Original New scenario Scenario Net interest margin 1.00% 1.03% Total assets $2 $2 Rise in nim 3.0% Rise in total assets 3.0% Net interest income $0.020 $0.021
As a firm grows, it must support increases in revenue with new investments in assets. The self-supporting growth model helps a firm assess how rapidly it can grow, while maintaining a balance between its cash outflows (increases in noncash assets) and inflows (funds resulting from increases in liabilities or equity). Consider this case: Green Moose Industries has no debt in its capital structure and has $300 million in assets. Its sales revenues last year were $210 million with a net income of $10 million. The company distributed $1.55 million as dividends to its shareholders last year. What is the firm’s self-supporting, growth rate? (Note: Do not round your intermediate calculations.) 2.90% 0.61% 4.00% 0.52% Which of the following are assumptions of the self-supporting growth model? Check all that apply. The firm must issue the same number of new common shares that it issued last year. Common stock is the firm’s only form of equity.…
Kale Inc. forecasts the free cash flows (in millions) shown below. Assume the firm has zero non-operating assets. If the weighted average cost of capital is 11.0% and FCF is expected to grow at a rate of 5.0% after Year 2, then what is the firm’s total corporate value (in millions)? Do not round intermediate calculations. Year 1 2 Free Cash flow -$30 $195 a. $3,413 million b. $2,901 million c. $3,044 million d. $2,743 million e. $2,643 million
Consider a firm with an EBITDA of $1,100,000 and an EBIT of $1,000,000. The firm finances its assets with $4,640,000 debt (costing 8.4 percent, all of which is tax deductible) and 214,000 shares of stock selling at $12 per share. To reduce risk associated with this financial leverage, the firm is considering reducing its debt by $2,640,000 by selling additional shares of stock. The firm’s tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $1,000,000. Calculate the EPS before and after the change in capital structure and indicate changes in EPS.
Consider a firm with an EBITDA of $1,100,000 and an EBIT of $1,000,000. The firm finances its assets with $4,650,000 debt (costing 8.6 percent, all of which is tax deductible) and 216,000 shares of stock selling at $18 per share. To reduce risk associated with this financial leverage, the firm is considering reducing its debt by $2,700,000 by selling additional shares of stock. The firm's tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $1,000,000. Calculate the EPS before and after the change in capital structure and indicate changes in EPS. (Do not round intermediate calculations. Round your answers to 2 decimal places.) EPS before EPS after Changes in debt $ $ $ 2:19 1.80 0:40
Williamson Industries has $3 billion in sales and $2.826 billion in fixed assets. Currently, the company's fixed assets are operating at 90% of capacity. a. What level of sales could Williamson Industries have obtained if it had been operating at full capacity? Enter your answer in billions of dollars. Round your answer to five decimal places. $ billion b. What is Williamson's target fixed assets/sales ratio? Do not round intermediate calculations. Round your answer to two decimal places. % c. If Williamson's sales increase 13%, how large of an increase in fixed assets will the company need to meet its target fixed assets/sales ratio? Enter your answer in billions of dollars. Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to five decimal places. billion $
Softek Corporation forms a separate legal entity, Startek, to develop new technology. The entity is funded by $2,000,000 in outside equity and $26,000,000 in debt. Softek guarantees Startek's debt. The entity is expected to generate the following cash flows at the end of two years: Cash Flow Probability $14,520,000 0.50 42,350,000 0.20 60,500,000 0.30 A discount rate of 10 percent is appropriate. Required Assume qualitative analysis of Startek's VIE status is inconclusive. Quantitatively analyze whether Startek is a variable interest entity. Instructions: Use negative signs with your answers, when appropriate. • Enter $ answers in millions ($11,000,000 equals $11 million). • Enter Probability answers using decimals. Expected Present Cash Flow Value Probability Expected Investment Residual Expected Fair Value Returns S PV Gains $ $ Expected Losses
Dyrdek Enterprises has equity with a market value of $12.6 million and the market value of debt is $4.45 million. The company is evaluating a new project that has more risk than the firm. As a result, the company will apply a risk adjustment factor of 1.9 percent. The new project will cost $2.56 million today and provide annual cash flows of $666,000 for the next 6 years. The company's cost of equity is 11.79 percent and the pretax cost of debt is 5.06 percent. The tax rate is 24 percent. What is the project's NPV? Multiple Choice $208,195 $194,561 $536,049 $183,363 $364,858
Copmany A. has $2,491,100 in current assets and $859,000 in current liabilities. The company's managers want to increase the firm's inventory, which will be financed using short-term debt. How much can the firm increase its inventory without its current ratio falling below 2.2 (assuming all other current assets and current liabilities remain constant)?
Reynolds Construction's current value of operations is $750 million based on the free cash flow valuation model. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, and $300 million of total debt. What is the best estimate for the firm's value of equity, in millions?.

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