Chapter 6, Problem 6.28BE

Ratio Analyses. Green Grasshopper Incorporated is interested in assessing the following scenarios on its indicators of liquidity, solvency, and profitability. Solve each scenario independently.

1. a. a Green Grasshopper’s debt-to-equity ratio is 40%. It is considering issuing $13 million in bonds that would increase its total liabilities to $68 million. What would Green Grasshopper’s debt-to-equity ratio be if it issued the bonds?
2. b. b Green Grasshopper’s current ratio is 1.45. It is considering issuing $30 million in bonds to purchase a new manufacturing facility. Its current liabilities are $28 million, but the new debt would increase the current portion of its long-term debt payable by $3.2 million. What would Green Grasshopper’s current ratio be if it issued the bonds and used the proceeds to purchase the facility?