Q18: Current Ratio. How would the following actions affect a firm's current ratio?
a. Inventory is sold.
b. The firm takes out a bank loan to pay its suppliers.
c. The firm arranges a lone of credit with a bank that allows it to borrow at any time to pay its suppliers.
d. A customer pays its overdue bills.
d. The firm uses cash to purchase additional inventories.
Q17: Suppose that a firm has both floating rate and fixed rate debt outstanding. What effect will a decline in interest rates have on the firm's times interest earned ratio? What about the ratio of the market value of debt to that of equity? Based on these answers, would you say that leverage has increased or decreased?
Q15: Describe some alternative measures of a firm's overall performance. What are their advantages and disadvantages? In each case discuss what benchmarks you might use to judge whether performance is satisfactory.
Please see the attached file for the full solution.
Total Current Assets $300 million
Crash-sorry-cash ratio 0.05
Cash and Marketable Securities $15 million
a. No effect. If sold in cash, inventory will go down and cash will come, if sold in credit inventory will go down and Accounts Receivable will go up. No change in current assets assuming inventory is valued at market price.
b No impact. As payable to supplier will be replaced with short term loan from bank. No change in current liabilities.
c No change. This is just an agreement and there is no transaction yet.
d No change as Accounts ...
The Solution addresses five questions based around accounting ratios, risk, and performance measures.