(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)
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
The Dog House has sales of $502,000, and depreciation of $47,000. The firm is entirely equity-financed and has a profit margin of 5% and tax rate of 35%. What is the amount of the operating cash flow?
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
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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.
The king carpet company has $2,820,000 in cash and a total of $11,280,000 in current assets. The firms current liabilities equal $6,730,000 such that the firms current ratio equals 1.7. The company’s managers want to reduce the firm’s cash holdings down to $1,150,000 by paying $591,000 in cash to expand the firm’s truck fleet and using $1,079,000 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.
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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