QUESTION 4 Use the information provided to answer the questions. 4.1 Study the ratios provided below which were calculated from a project of Colchester Limited for 2020 and 2019 and provide suitable comments for each ratio. INFORMATION Ratio 2020 2019 Acid test ratio 0.91:1 1.32:1 Return on capital employed 16.18% 24.28% Trade receivables period 38.5 days 29.45 days Trade payables period 30 days 60 days Operating profit margin 29.69% 20.47% Inventory turnover period 60 days 40 days Additional information Credit terms to debtors are 30 days and credit terms offered by creditors are 60 days. The interest rate on long-term borrowing is 12%. Calculate the weighted average cost of capital from the information provided below. 4.2 INFORMATION Mac Limited intends investing in a new project. Finance can be obtained from banks at 15% and dividends are expected to be paid out to investors at a rate of 12% of ordinary shares. Assets are financed in the ratio 3:2 in favour of equity.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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QUESTION 4
Use the information provided to answer the questions.
4.1
Study the ratios provided below which were calculated from a project of Colchester Limited for 2020
and 2019 and provide suitable comments for each ratio.
INFORMATION
Ratio
2020
2019
Acid test ratio
0.91:1
1.32:1
Return on capital employed
16.18%
24.28%
Trade receivables period
38.5 days
29.45 days
Trade payables period
30 days
60 days
Operating profit margin
20.47%
29.69%
Inventory turnover period
60 days
40 days
Additional information
Credit terms to debtors are 30 days and credit terms offered by creditors are 60 days.
The interest rate on long-term borrowing is 12%.
Calculate the weighted average cost of capital from the information provided below.
4.2
INFORMATION
Mac Limited intends investing in a new project. Finance can be obtained from banks at 15% and dividends are
expected to be paid out to investors at a rate of 12% of ordinary shares. Assets are financed in the ratio 3:2 in
favour of equity.
Transcribed Image Text:QUESTION 4 Use the information provided to answer the questions. 4.1 Study the ratios provided below which were calculated from a project of Colchester Limited for 2020 and 2019 and provide suitable comments for each ratio. INFORMATION Ratio 2020 2019 Acid test ratio 0.91:1 1.32:1 Return on capital employed 16.18% 24.28% Trade receivables period 38.5 days 29.45 days Trade payables period 30 days 60 days Operating profit margin 20.47% 29.69% Inventory turnover period 60 days 40 days Additional information Credit terms to debtors are 30 days and credit terms offered by creditors are 60 days. The interest rate on long-term borrowing is 12%. Calculate the weighted average cost of capital from the information provided below. 4.2 INFORMATION Mac Limited intends investing in a new project. Finance can be obtained from banks at 15% and dividends are expected to be paid out to investors at a rate of 12% of ordinary shares. Assets are financed in the ratio 3:2 in favour of equity.
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