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Question 4 Jingle Ltd. and Bell Ltd. belong to the same industry. A snapshot of some of their financial information is given below: Jingle Ltd. Bell Ltd. 2:1 1.1:1 Current ratio Acid-test ratio Debt-Equity ratio Times interest earned 3.2 :1 1.7:1 30% 40% 6 5 You are a loans officer and both companies have asked for an equal 2-year loan. i) If you could facilitate only one loan, which company would you refuse? Explain your reasoning briefly If both companies could be facilitated, would you be willing to do so? Explain your argument brieffly. ii)

Question 4 Jingle Ltd. and Bell Ltd. belong to the same industry. A snapshot of some of their financial information is given below: Jingle Ltd. Bell Ltd. 2:1 1.1:1 Current ratio Acid-test ratio Debt-Equity ratio Times interest earned 3.2 :1 1.7:1 30% 40% 6 5 You are a loans officer and both companies have asked for an equal 2-year loan. i) If you could facilitate only one loan, which company would you refuse? Explain your reasoning briefly If both companies could be facilitated, would you be willing to do so? Explain your argument brieffly. ii)

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question 4 Jingle Ltd. and Bell Ltd. belong to the same industry. A snapshot of some of their financial information is given below: Jingle Ltd. Bell Ltd. 2:1 1.1:1 |Current ratio Acid-test ratio Debt-Equity ratio Times interest earned 3.2 :1 1.7:1 30% | 40% 6 5 You are a loans officer and both companies have asked for an equal 2-year loan. i) If you could facilitate only one loan, which company would you refuse? Explain your reasoning briefly If both companies could be facilitated, would you be willing to do so? Explain your argument brieffly. ii) Question 5 So Long, Inc, has sales of $334,000, costs of $145,400, depreciation expense of S63,200 and interest expense of $22,300. If the tax rate is 35%, (a) What is the operating cash flow or OCF? (b) Explain why interest paid is not a component of operating cash flow. Question 6 During 2019, Bitsincoins Corporation had EBIT of $100,000, a change in net fixed assets of $400,000, an increase in net current assets of $100,000, an increase in spontaneous current liabilities of $400,000, a depreciation expense of $50,000, and a tax rate of 30%. Based on this information, what is Bitsincoin's free cash flow?
Transcribed Image Text:Question 4 Jingle Ltd. and Bell Ltd. belong to the same industry. A snapshot of some of their financial information is given below: Jingle Ltd. Bell Ltd. 2:1 1.1:1 |Current ratio Acid-test ratio Debt-Equity ratio Times interest earned 3.2 :1 1.7:1 30% | 40% 6 5 You are a loans officer and both companies have asked for an equal 2-year loan. i) If you could facilitate only one loan, which company would you refuse? Explain your reasoning briefly If both companies could be facilitated, would you be willing to do so? Explain your argument brieffly. ii) Question 5 So Long, Inc, has sales of $334,000, costs of $145,400, depreciation expense of S63,200 and interest expense of $22,300. If the tax rate is 35%, (a) What is the operating cash flow or OCF? (b) Explain why interest paid is not a component of operating cash flow. Question 6 During 2019, Bitsincoins Corporation had EBIT of $100,000, a change in net fixed assets of $400,000, an increase in net current assets of $100,000, an increase in spontaneous current liabilities of $400,000, a depreciation expense of $50,000, and a tax rate of 30%. Based on this information, what is Bitsincoin's free cash flow?
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