Question

Put a + if the relationship is positive; put a - if the relationship is negative. If there is no relationship, write NC.

If an account payable is paid-off with cash, net working capital _________.

If cash dividends are paid, retained earnings _________ and total assets ________.

If an account payable is refinanced with a short-term bank loan, net working capital ________and inventory turnover ________.

If the yield curve is positively sloped and long-term debt is substituted for short-term debt, the debt ratio­­­_______ and days sales outstanding _______.

If accounts receivable are “factored” and sold at a discount, dividends _______, total asset turnover

_________, and federal income taxes ________.

As interest owed accrues times-interest earned _______ and federal income taxes _______.

Answer 1

1. NC Reason- there is a decrease in current liablity and decrease in currentassets and no change in Wokking capital

2. (-),(-) Reason- when dividends are paid out of cash both retained earnings and cash will decrease.

3.NC,NC Reason- one current liablity is replaced with other current liablity so there is no impact on workings capital and investory is not effectee with this transaction

4. NC,NC Reason- Debt equity ratio is calculated based on debt and total equity in case long term debt is changed to short term the nature of debt remains same.

5.NC,(-),(-) Reason- factoring will reduce the receivable and it will impact the profits and not dividends because out of the earned profits dividend payout ratio may be change. reduction in receivables will reduce the total assets hence the asset turnoverration will decrease. discoutn is allowed in profit and loss hence taxes will reduce.

6.(+), (-) Reason as interest expenses accurues interest expense will incares and it will decrease the federal taxes.