The quick ratio is equal to Plugging in the relevant values for current assets, current liabilities, and inventories (calculated using the previous identity) yields a quick ratio of approximately 1.4583 Suppose that Niles could reduce its DSO from 18.25 to 12. Given the formula for DSO from the video, as well as the same annual sales of $2,500,000, the new value accounts receivable (associated the new DSO) must be $20,547.95, all else equal. The change (or the absolute value of the difference between the original and new values) in accounts receivable represents an amount of approximately in cash generated. As a result of the stock buy back, the ROA and ROE both increase Suppose Niles uses the cash generated by the lower DSO to buy back common stock at book value, thus reducing common equity. As a result of this new, lower, DSO, total debt debt/total capital ratio must and total capital This means that the total
The quick ratio is equal to Plugging in the relevant values for current assets, current liabilities, and inventories (calculated using the previous identity) yields a quick ratio of approximately 1.4583 Suppose that Niles could reduce its DSO from 18.25 to 12. Given the formula for DSO from the video, as well as the same annual sales of $2,500,000, the new value accounts receivable (associated the new DSO) must be $20,547.95, all else equal. The change (or the absolute value of the difference between the original and new values) in accounts receivable represents an amount of approximately in cash generated. As a result of the stock buy back, the ROA and ROE both increase Suppose Niles uses the cash generated by the lower DSO to buy back common stock at book value, thus reducing common equity. As a result of this new, lower, DSO, total debt debt/total capital ratio must and total capital This means that the total
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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Transcribed Image Text:Recall the following identity:
Current Assets = Cash and equivalents + Accounts Receivable + Inventories
The quick ratio is equal to . Plugging in the relevant values for current assets, current liabilities, and inventories (calculated using the
previous identity) yields a quick ratio of approximately 1.4583
Suppose that Niles could reduce its DSO from 18.25 to 12.
Given the formula for DSO from the video, as well as the same annual sales of $2,500,000, the new value accounts receivable (associated with
the new DSO) must be $20,547.95, all else equal.
The change (or the absolute value of the difference between the original and new values) in accounts receivable represents an amount of
approximately
in cash generated.
As a result of the stock buy back, the ROA and ROE both increase
Suppose Niles uses the cash generated by the lower DSO to buy back common stock at book value, thus reducing common equity.
As a result of this new, lower, DSO, total debt
debt/total capital ratio must
and total capital
This means that the total
Transcribed Image Text:Suppose that you are given the following data for Niles Company :
Note: The data and calculations are based on a 365-day year.
Cash and equivalents
Fixed assets
Sales
Net income
Current liabilities
Current ratio
DSO
ROE
$225,000
$650,000
$2,500,000
$112,500
$240,000
2.5
18.25
12.00%
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