Working capital : The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital. Formula of working capital: Working capital = Current assets − Current liabilities Current ratio : The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company. Formula of current ratio: Current ratio = Current assets Current liabilities Debt to assets ratio : This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company. Formula of debt to assets ratio: Debt to assets ratio = Total liabilities Total assets Free cash flow : This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends. Formula of free cash flow: Free cash flow = { Net cash provided by operating activities − Capital expenditures − Dividends } Earnings per share (EPS) : The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS). Formula of EPS: EPS = Net income − Preferred dividends Weighted average common shares outstanding To compute : Working capital

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Answer 1

Question

Chapter 2, Problem 2.7BP

(a)

To determine

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital.

Formula of working capital:

Working capital= Current assets−Current liabilities

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

Current ratio=Current assetsCurrent liabilities

Debt to assets ratio: This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company.

Formula of debt to assets ratio:

Debt to assets ratio=Total liabilitiesTotal assets

Free cash flow: This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends.

Formula of free cash flow:

Free cash flow= {Net cash provided by operating activities−Capital expenditures−Dividends}

Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS).

Formula of EPS:

EPS=Net income−Preferred dividendsWeighted average common shares outstanding

To compute: Working capital

(b)

To determine

To compute: Current ratio

(c)

To determine

To compute: Debt to assets ratio

(d)

To determine

To compute: Free cash flow

(e)

To determine

To compute: EPS of Corporation T and Corporation W for 2014

(f)

To determine

To compute: Analyze the liquidity and solvency position of two companies based on the computed ratios

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Fiona Industries plans to produce 30,000 units next period at a denominator activity of 60,000 direct labor hours. The direct labor wage rate is $16.50 per hour. The company's standards allow 2.2 yards of direct materials for each unit of product; the material costs $10.50 per yard. The company's budget includes a variable manufacturing overhead cost of $3.25 per direct labor hour and fixed manufacturing overhead of $285,000 per period. Using 60,000 direct labor hours as the denominator activity, compute the predetermined overhead rate and break it down into variable and fixed elements.

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Answer 2

Question

Chapter 2, Problem 2.7BP

(a)

To determine

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital.

Formula of working capital:

Working capital= Current assets−Current liabilities

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

Current ratio=Current assetsCurrent liabilities

Debt to assets ratio: This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company.

Formula of debt to assets ratio:

Debt to assets ratio=Total liabilitiesTotal assets

Free cash flow: This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends.

Formula of free cash flow:

Free cash flow= {Net cash provided by operating activities−Capital expenditures−Dividends}

Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS).

Formula of EPS:

EPS=Net income−Preferred dividendsWeighted average common shares outstanding

To compute: Working capital

(b)

To determine

To compute: Current ratio

(c)

To determine

To compute: Debt to assets ratio

(d)

To determine

To compute: Free cash flow

(e)

To determine

To compute: EPS of Corporation T and Corporation W for 2014

(f)

To determine

To compute: Analyze the liquidity and solvency position of two companies based on the computed ratios

Expert Solution & Answer

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Answer 3

Question

Chapter 2, Problem 2.7BP

(a)

To determine

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital.

Formula of working capital:

Working capital= Current assets−Current liabilities

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

Current ratio=Current assetsCurrent liabilities

Debt to assets ratio: This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company.

Formula of debt to assets ratio:

Debt to assets ratio=Total liabilitiesTotal assets

Free cash flow: This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends.

Formula of free cash flow:

Free cash flow= {Net cash provided by operating activities−Capital expenditures−Dividends}

Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS).

Formula of EPS:

EPS=Net income−Preferred dividendsWeighted average common shares outstanding

To compute: Working capital

(b)

To determine

To compute: Current ratio

(c)

To determine

To compute: Debt to assets ratio

(d)

To determine

To compute: Free cash flow

(e)

To determine

To compute: EPS of Corporation T and Corporation W for 2014

(f)

To determine

To compute: Analyze the liquidity and solvency position of two companies based on the computed ratios

Expert Solution & Answer

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See solution

Answer 4

Question

Chapter 2, Problem 2.7BP

(a)

To determine

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital.

Formula of working capital:

Working capital= Current assets−Current liabilities

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

Current ratio=Current assetsCurrent liabilities

Debt to assets ratio: This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company.

Formula of debt to assets ratio:

Debt to assets ratio=Total liabilitiesTotal assets

Free cash flow: This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends.

Formula of free cash flow:

Free cash flow= {Net cash provided by operating activities−Capital expenditures−Dividends}

Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS).

Formula of EPS:

EPS=Net income−Preferred dividendsWeighted average common shares outstanding

To compute: Working capital

(b)

To determine

To compute: Current ratio

(c)

To determine

To compute: Debt to assets ratio

(d)

To determine

To compute: Free cash flow

(e)

To determine

To compute: EPS of Corporation T and Corporation W for 2014

(f)

To determine

To compute: Analyze the liquidity and solvency position of two companies based on the computed ratios

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 5

Chapter 2, Problem 2.7BP

(a)

To determine

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital.

Formula of working capital:

Working capital= Current assets−Current liabilities

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

Current ratio=Current assetsCurrent liabilities

Debt to assets ratio: This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company.

Formula of debt to assets ratio:

Debt to assets ratio=Total liabilitiesTotal assets

Free cash flow: This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends.

Formula of free cash flow:

Free cash flow= {Net cash provided by operating activities−Capital expenditures−Dividends}

Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS).

Formula of EPS:

EPS=Net income−Preferred dividendsWeighted average common shares outstanding

To compute: Working capital

(b)

To determine

To compute: Current ratio

(c)

To determine

To compute: Debt to assets ratio

(d)

To determine

To compute: Free cash flow

(e)

To determine

To compute: EPS of Corporation T and Corporation W for 2014

(f)

To determine

To compute: Analyze the liquidity and solvency position of two companies based on the computed ratios

Answer 6

Chapter 2, Problem 2.7BP

(a)

To determine

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital.

Formula of working capital:

Working capital= Current assets−Current liabilities

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

Current ratio=Current assetsCurrent liabilities

Debt to assets ratio: This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company.

Formula of debt to assets ratio:

Debt to assets ratio=Total liabilitiesTotal assets

Free cash flow: This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends.

Formula of free cash flow:

Free cash flow= {Net cash provided by operating activities−Capital expenditures−Dividends}

Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS).

Formula of EPS:

EPS=Net income−Preferred dividendsWeighted average common shares outstanding

To compute: Working capital

Answer 7

Chapter 2, Problem 2.7BP

(a)

To determine

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital.

Formula of working capital:

Working capital= Current assets−Current liabilities

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

Current ratio=Current assetsCurrent liabilities

Debt to assets ratio: This financial ratio evaluates the ability of a company to pay off long-term debt obligations owed to creditors. This ratio assesses the solvency of a company.

Formula of debt to assets ratio:

Debt to assets ratio=Total liabilitiesTotal assets

Free cash flow: This measure evaluates the cash-generating capacity of a company from its operating activities, after paying capital expenditures and dividends.

Formula of free cash flow:

Free cash flow= {Net cash provided by operating activities−Capital expenditures−Dividends}

Earnings per share (EPS): The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS).

Formula of EPS:

EPS=Net income−Preferred dividendsWeighted average common shares outstanding

To compute: Working capital

Answer 8

(b)

To determine

To compute: Current ratio

Answer 9

(b)

To determine

To compute: Current ratio

Answer 10

(c)

To determine

To compute: Debt to assets ratio

Answer 11

(c)

To determine

To compute: Debt to assets ratio

Answer 12

(d)

To determine

To compute: Free cash flow

Answer 13

(d)

To determine

To compute: Free cash flow

Answer 14

(e)

To determine

To compute: EPS of Corporation T and Corporation W for 2014

Answer 15

(e)

To determine

To compute: EPS of Corporation T and Corporation W for 2014

Answer 16

(f)

To determine

To compute: Analyze the liquidity and solvency position of two companies based on the computed ratios

Answer 17

(f)

To determine

To compute: Analyze the liquidity and solvency position of two companies based on the computed ratios

Answer 18

Expert Solution & Answer

Answer 19

Expert Solution & Answer

Answer 20

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Answer 21

Ch. 2 - What is meant by the term operating cycle?Ch. 2 - Define current assets. What basis is used for...Ch. 2 - Prob. 3Q Ch. 2 - Prob. 4Q Ch. 2 - Prob. 5Q Ch. 2 - Prob. 6Q Ch. 2 - Prob. 7Q Ch. 2 - Prob. 8Q Ch. 2 - What do these classes of ratios measure? (a)...Ch. 2 - Prob. 10Q

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To compute: Current ratio

To compute: Debt to assets ratio

To compute: Free cash flow

To compute: EPS of Corporation T and Corporation W for 2014

To compute: Analyze the liquidity and solvency position of two companies based on the computed ratios

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Chapter 2 Solutions