Snowball & Company has the following balance sheet:

Current assets $ 7,000 A/P & Accruals $ 1,500
Fixed assets 3,000 S-T (3-month) Loans 2,000
Common Stock 1,500
Ret. Earnings 5,000
Total assets $10,000 Total claims $10,000

Snowball's after-tax profit margin is 11 percent, and the company pays out 60 percent of its earnings as dividends. Its sales last year were $10,000; its assets were used to full capacity; no economies of scale exist in the use of assets; and the profit margin and payout ratio are expected to remain constant. The company uses the AFN equation to estimate funds requirements, and it plans to raise any required external capital as short-term bank loans. If sales grow by 50 percent, what will Snowball's current ratio be after it has raised the necessary expansion funds? (Note: Ignore any financing feedback effects.)

a. 2.36
b. 2.00
c. 1.78
d. 1.50
e. 1.34

Solution Preview

We first find the AFN
AFN = increase in assets - increase in spontaneous liabilities - retained earnings
increase in assets = 10,000X50%=5,000 ( assets increase in proportion of sales)
increase in ...

Solution Summary

The solution explains the calculation of current ratio after the external funds are raised.

... A financial analysis for calculating current and quick ratios...Ratios are calculated in different ways, however, you ... F. Calculate the 2011 price/earnings ratio...

Calculate Ratios for PepsiCo: current ratio in vertical and horizontal formats. See file attached. Calculate the following for PepsiCo, Inc. and show your work: ...

... Use the statements to calculate the following: 1. Calculate the current ratio at year-end 2014. ... Required: 1. Calculate the current ratio at year-end 2014. ...

Accounting /business. 1. Calculating Ratios. ... 1 Calculate the following financial ratios: a. Long-term debt ratio b. Total debt ratio c. Times interest earned d ...

... 2. Calculate the following ratios for 2000: Current ratio, Quick ratio, Inventory turnover ratio, Gross profit Margin, Net profit margin, ROA, Asset turnover ...

Use the balance sheets of Sando shown below to calculate the following ratios for 2008 (round to the hundredths): (a) Current ratio. (b) Acid-test ratio. ...

... 1- Calculate the following financial ratios/numbers as ... numerator in the formula for calculating ROE ... This ratio is calculated by dividing administrative costs by ...

Calculating the Profitability and Liquidity Ratios of Companies. ... & Johnson would be calculated as follows ... Liquidity ratios Current ratio - This ratio is used to ...

... A similar concept applies for calculating the debt-to ... enough information was not provided to calculate it (unless ... It is calculated by dividing dividends by net ...