Question

Use the following balance sheet for Delta Company to answer the following 4 questions.

Assets	Liabilities and owners equity
Cash 600	Accounts Payable 700
Inventory 80	Notes Payable 200
Accounts Receivable 400	Current Maturing LTD 40
Fixed assets 1500	Stock 1300
Accumulated Depreciation (90)	Retained Earnings 250
Total 2490	Total 2490

Which of the following statements is accurate in regards to Delta's financial position?

		Delta's NWC suggests that solvency is a concern.
		Delta's NWC suggests that the firm has a liquidity concern.
		Delta's WCR suggests that the firm has a solvency concern.
		None of the above.

5 points   

QUESTION 10

Find Delta's current ratio. Round intermediate steps and your final answer to four decimals.

5 points   

QUESTION 11

Find delta's net liquid balance (NLB). Do not use dollar signs or words when entering your response.

5 points   

QUESTION 12

Suppose that Delta brought in $200 in sales and its cost of goods sold is equal to 50% of sales. Find Delta's DIH. Round to the nearest whole day.

		292
		146
		243
		302
		None of the above

5 points   

QUESTION 13

Use the following balance sheet and income statement for Smith Inc. to answer the next 5 questions.

Assets (Millions)	Liabilities and owners equity (Millions)
Cash 4000	Accounts Payable 900
Inventory 600	Accrued operating expense 400
Accounts Receivable 1500	Notes Payable 3500
Fixed assets 6000	Long Term Debt 2000
	Shareholders Equity 5300
Total 12100	Total 12100

Income Statement (Millions)

Revenues 7000

COGS 4500

Operating Expenses 900

Depreciation 600

Interest 400

Taxes 500

Net Profit 100

Find Smith's days sales outstanding (DSO).  Round to the nearest whole day.

		47
		78
		122
		73

5 points   

QUESTION 14

Calculate Smith's DPO. Round to the nearest whole day. Do not use words when entering your response.

5 points   

QUESTION 15

How long does Smith wait from the time an inventory order is received until payment is received? Round intermediate steps and the final answer to the nearest whole day.

		115
		122
		127
		None of the above.

Answer 1

9: Net working capital = current assets – current liabilities.

Current assets = cash+inventory+accounts receivables = 600+80+400 = 1080

Current liabilities = accounts payable+notes payable+current maturing LTD = 700+200+40 = 940

NWC = 1080-940 = 140.

Thus NWC is positive and hence there is no liquidity concern.

WCR = working capital ratio = current assets/current liabilities = 1080/940 = 1.1489

As the WCR>1 it means that the company can pay all of its current liabilities and still have current assets left over.

Hence the answer is “none of the above”

10: Current ratio = current assets/current liabilities = 1080/940 = 1.1489

11: NLB = (cash and cash equivalents+short term investments) – notes payable – current portion of long term debt

= 600 – 200 – 40

= 360

12: DIH = days inventory on hand = (average inventory)/cost of goods sold*365 days

Cost of goods sold = 50% of $200 = $100. Thus DIH = 80/100*365 = 292