(Liquidity Analysis) The King Carpet Company has $2,960,000 in cash and a total of $11,980,000 in current assets. The firm's current liabilities equal $5,050,000 such that the firm's current ratio equals 2.4. The company's managers want to reduce the firm's cash holdings down to $1,070,000 by paying $524,000 in cash to expand the firm's truck fleet and using $1,366,000 in cash to retire a short-term note. If they carry this plan through, what will happen to the firm's current ratio?

(Liquidity Analysis) The King Carpet Company has $2,960,000 in cash and a total of $11,980,000 in current assets. The firm's current liabilities equal $5,050,000 such that the firm's current ratio equals 2.4. The company's managers want to reduce the firm's cash holdings down to $1,070,000 by paying $524,000 in cash to expand the firm's truck fleet and using $1,366,000 in cash to retire a short-term note. If they carry this plan through, what will happen to the firm's current ratio?

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Description: (Liquidity Analysis) The King Carpet Company has $2,960,000 in cash and a total of $11,980,000 in current assets.The firm's current liabilities equal $5,050,000 such that the firm's current ratio equals 2.4. The company's managerswant to reduce the

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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(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 retire The 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 holdings short-term note. If they carry this plan through, what will happen to the firm's current ratio? C
The King Carpet Company has $3,010,000 in cash and a total of $12,110,000 in current assets. The firm's current liabilities equal $5,630,000 such that the firm's current ratio equals 2.2 The company's managers want to reduce the firm's cash holdings down to $1,180,000 by paying $560,000 in cash to expand the firm's truck fleet and using $1,270,000 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 2 decimals)
Pizza Place, a national pizza chain is considering purchasing a smaller chain, Western Mountain Pizza. Projected cash flows as a result of the merger are: Year1, P1,500,000; Year2, P2,000,000; Year3, P3,000,000; Year4, P5,000,000. In addition, Western's year4 cashflows are expected to grow at a constant rate of 5% after year 4. Western's post merger beta is estimated to be 1.5 and its post-merger tax rate is 40%. The risk-free rate is 6% and the market risk premium is 4%. What is the total value of Western Mountain Pizza to Pizza Place? Show your solution.
Pizza Place, a national pizza chain is considering purchasing a smaller chain, Western Mountain Pizza. Projected cash flows as a result of the merger are: Year1, $1,500,000; Year2, $2,000,000; Year3, $3,000,000; Year4, $5,000,000. In addition, Western's year4 cashflows are expected to grow at a constant rate of 5% after year 4. Western's post-merger beta is estimated to be 1.5 and its post-merger tax rate is 40%. The risk-free rate is 6% and the market risk premium is 4%. Question: How much is the projected terminal cashflow (cashflow after year 4 to infinity) from Western Mountain Pizza?
Check my work Consider a firm with an EBIT of $866,000. The firm finances its assets with $2,660,000 debt (costing 8 percent and is all tax deductible) and 560,000 shares of stock selling at $5.00 per share. To reduce the firm's risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 360,000 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 $866,000. Calculate the change in the firm's EPS from this change in capital structure. (Do not round intermediate calculations and round your final answers to 2 decimal places.) EPS before EPS after Difference
Bakers Industries believes that its two primary product lines, pastries and savory food, are rapidly becoming outdated. Its free cash flow is rapidly diminishing as it loses market share to new firms entering its industry. Bakers Industries has OMR 375 million in debt outstanding. Senior management expects the pastries and savory food product lines to generate OMR 48 million and OMR 29 million, respectively, in earnings before interest, taxes, depreciation, and amortization next year. Senior management also believes that they will not be able to upgrade these product lines due to declining cash flow and excessive current leverage. A competitor to its pastries business last year sold for 19 times EBITDA. Moreover, a company that is similar to its savory food product line sold last month for 22 times EBITDA. Estimate Baker's breakup value before taxes.
Pizza Place, a national pizza chain is considering purchasing a smaller chain, Western Mountain Pizza. Projected cash flows as a result of the merger are: Year1, P1,500,000; Year2, P2,000,000; Year3, P3,000,000; Year4, P5,000,000. In addition, Western's year4 cashflows are expected to grow at a constant rate of 5% after year 4. Western's post merger beta is estimated to be 1.5 and its post-merger tax rate is 40%. The risk-free rate is 6% and the market risk premium is 4%. What is the maximum bid price per share of Pizza Place for Western Mountain Pizza? Show your solution
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Bhupatbhai
Hardwig Inc. is considering whether to pursue a restricted or relaxed current asset investment policy. The firm's annual sales are expected to total $3,600,000, its fixed assets turnover ratio equals 4.0, and its debt and common equity are each 50% of total assets. EBIT is $150,000, the interest rate on the firm's debt is 10%, and the tax rate is 40%. If the company follows a restricted policy, its total assets turnover will be 2.5. Under a relaxed policy its total assets turnover will be 2.2. Refer to the data for Hardwig, Inc.Assume now that the company believes that if it adopts a restricted policy, its sales will fall by 15% and EBIT will fall by 10%, but its total assets turnover, debt ratio, interest rate, and tax rate will all remain the same. In this situation, what's the difference between the projected ROEs under the restricted and relaxed policies?
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.

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