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Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
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Chapter 12, Problem 3MCQ
To determine
The factors that a banker must consider in determining whether the company should receive a loan.
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(Liquidity analysis) When firms enter into loan agreements with their bank, it is very common for the agreement to have a restriction on the minimum current ratio the firm has to maintain. So, it is important that the firm be aware of the effects of their decisions on the current ratio. Consider the situation of Advanced Autoparts (AAP) in 2009. The firm had total current assets of
$1,912,160,600
and current liabilities of
$1,365,829,000.
a. What is the firm's current ratio?
b. If the firm were to expand its investment in inventory and finance the expansion by increasing accounts payable, how much could it increase its inventory without reducing the current ratio below
1.2?
c. If the company needed to raise its current ratio to
1.5
by reducing its investment in current assets and simultaneously reducing accounts payable and short-term debt, how much would it have to reduce current assets to accomplish this goal?
(Liquidity analysis) When firms enter into loan agreements with their bank, it is very common for the agreement to have a restriction on the minimum current ratio the firm has to maintain. So, it is important that
the firm be aware of the effects of their decisions on the current ratio. Consider the situation of Advanced Autoparts (AAP) in 2009. The firm had total current assets of $1,908,026,400 and current liabilities of
$1,362,876,000.
a. What is the firm's current ratio?
b. If the firm were to expand its investment in inventory and finance the expansion by increasing accounts payable, how much could it increase its inventory without reducing the current ratio below 1.2?
c. If the company needed to raise its current ratio to 1.5 by reducing its investment in current assets and simultaneously reducing accounts payable and short-term debt, how much would it have to reduce current
assets to accomplish this goal?
a. What is the firm's current ratio?
The firm's current ratio is
(Round to…
(Liquidity analysis) When firms enter into loan agreements with their bank, it is very common for the agreement to have a restriction on the minimum current ratio the firm has to maintain. So, it is important that the firm be aware of the effects of their decisions on the current ratio. Consider the situation of Advanced Autoparts (AAP) in 2009. The firm had total current assets of
$1,908,685,800
and current liabilities of
$1,363,347,000.
a. What is the firm's current ratio?
b. If the firm were to expand its investment in inventory and finance the expansion by increasing accounts payable, how much could it increase its inventory without reducing the current ratio below
1.2?
c. If the company needed to raise its current ratio to
1.5
by reducing its investment in current assets and simultaneously reducing accounts payable and short-term debt, how much would it have to reduce current assets to accomplish this goal?
Chapter 12 Solutions
Cornerstones of Financial Accounting
Ch. 12 - Describe how some of the primary groups of users...Ch. 12 - Prob. 2DQCh. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - Prob. 7DQCh. 12 - Prob. 8DQCh. 12 - Prob. 9DQCh. 12 - Prob. 10DQ
Ch. 12 - Prob. 11DQCh. 12 - 12. Why are higher asset turnover ratios...Ch. 12 - Prob. 13DQCh. 12 - Prob. 14DQCh. 12 - Prob. 15DQCh. 12 - Prob. 16DQCh. 12 - Which of the following use financial statement...Ch. 12 - Prob. 2MCQCh. 12 - Prob. 3MCQCh. 12 - Prob. 4MCQCh. 12 - Prob. 5MCQCh. 12 - Prob. 6MCQCh. 12 - Prob. 7MCQCh. 12 - Which type of analysis compares a single...Ch. 12 - Which of the following types of analysis compares...Ch. 12 - Which of the following types of analysis is...Ch. 12 - Prob. 11MCQCh. 12 - Prob. 12MCQCh. 12 - Prob. 13MCQCh. 12 - Partial information from Fabray Companys balance...Ch. 12 - Hummel Inc. has $30,000 in current assets and...Ch. 12 - Prob. 16MCQCh. 12 - A firms quick ratio is typically computed as: a....Ch. 12 - Prob. 18MCQCh. 12 - Prob. 19MCQCh. 12 - Prob. 20MCQCh. 12 - Prob. 21MCQCh. 12 - Prob. 22MCQCh. 12 - Prob. 23MCQCh. 12 - When analyzing a companys debt to equity ratio,...Ch. 12 - Prob. 25MCQCh. 12 - Prob. 26MCQCh. 12 - Prob. 27MCQCh. 12 - Prob. 28MCQCh. 12 - Prob. 29MCQCh. 12 - Prob. 30MCQCh. 12 - Which of the following ratios is used to measure...Ch. 12 - Prob. 32MCQCh. 12 - Selected information for Berry Company is as...Ch. 12 - Which of the following ratios is used to measure a...Ch. 12 - Prob. 35MCQCh. 12 - Prob. 36MCQCh. 12 - Prob. 37MCQCh. 12 - Prob. 38MCQCh. 12 - Which of the following are not part of common...Ch. 12 - Prob. 40MCQCh. 12 - Prob. 41MCQCh. 12 - Prob. 42MCQCh. 12 - Which of the following is not included in the...Ch. 12 - When a Dupont analysis reveals that a company has...Ch. 12 - Prob. 45MCQCh. 12 - Cross Sectional Analysis Cross sectional analysis...Ch. 12 - Prob. 47CECh. 12 - Prob. 48CECh. 12 - Short-Term Liquidity Ratios Three ratios...Ch. 12 - Debt Management Ratios Selected data from the...Ch. 12 - Debt Management and Short-Term Liquidity Ratios...Ch. 12 - Asset Efficiency Ratios Selected financial...Ch. 12 - Profitability Ratios The following data came from...Ch. 12 - Prob. 54CECh. 12 - Prob. 55CECh. 12 - Prob. 56CECh. 12 - Prob. 57BECh. 12 - Prob. 58BECh. 12 - Prob. 59BECh. 12 - Short-Term Liquidity Ratios Larry, Curly, and Moe...Ch. 12 - Debt Management Ratios Glow Corporation provides...Ch. 12 - Debt Management and Short-Term Liquidity Ratios...Ch. 12 - Asset Efficiency Ratios Rumsford Inc.s financial...Ch. 12 - Prob. 64BECh. 12 - Profitability Ratios Tinker Corporation operates...Ch. 12 - Profitability Ratios Katrina Corp. is a publicly...Ch. 12 - Prob. 67BECh. 12 - Prob. 68ECh. 12 - Prob. 69ECh. 12 - Prob. 70ECh. 12 - Prob. 71ECh. 12 - Horizontal Analysis of Income Statements...Ch. 12 - Prob. 73ECh. 12 - Prob. 74ECh. 12 - Prob. 75ECh. 12 - Prob. 76ECh. 12 - Prob. 77ECh. 12 - Prob. 78ECh. 12 - Prob. 79ECh. 12 - Asset Efficiency Ratios Refer to financial...Ch. 12 - Prob. 81ECh. 12 - Prob. 82ECh. 12 - Prob. 83ECh. 12 - Prob. 84PSACh. 12 - Prob. 85PSACh. 12 - Prob. 86PSACh. 12 - A Using Common Size Statements The following...Ch. 12 - Prob. 88PSACh. 12 - Prob. 89PSACh. 12 - Prob. 90PSACh. 12 - A Comparing Financial Ratios Presented below are...Ch. 12 - A Preparation of Ratios Refer to the financial...Ch. 12 - Accounting Alternatives and Financial Analysis...Ch. 12 - Prob. 84PSBCh. 12 - Prob. 85PSBCh. 12 - Prob. 86PSBCh. 12 - Prob. 87PSBCh. 12 - Prob. 88PSBCh. 12 - Prob. 89PSBCh. 12 - Prob. 90PSBCh. 12 - Comparing Financial Ratios Presented below are...Ch. 12 - Prob. 92PSBCh. 12 - Problem 1 2-93B Accounting Alternatives and...Ch. 12 - Prob. 94CCh. 12 - Prob. 95.1CCh. 12 - Prob. 95.2CCh. 12 - Prob. 96.1CCh. 12 - Prob. 96.2CCh. 12 - Prob. 97.1CCh. 12 - Prob. 97.2CCh. 12 - Prob. 97.3CCh. 12 - Prob. 97.4CCh. 12 - Analyzing Growth Consolidated financial statements...Ch. 12 - Analyzing Growth Consolidated financial statements...Ch. 12 - Prob. 98.1CCh. 12 - Prob. 98.2CCh. 12 - Prob. 98.3CCh. 12 - CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT The...Ch. 12 - Prob. 99.2CCh. 12 - Prob. 99.3CCh. 12 - Prob. 99.4CCh. 12 - Prob. 99.5C
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