Question

Selected financial data for Wilmington Corporation is presented below.

WILMINGTON CORPORATION
Balance Sheet
	Dec. 31, Year 7	Dec. 31, Year 6
Current Assets
Cash and cash equivalents	$576,843	$305,088
Marketable securities	166,106	187,064
Accounts receivable (net)	258,387	289,100
Inventories	424,493	391,135
Prepaid expenses	55,369	25,509
Other current assets	83,053	85,029
Total Current Assets	1,564,251	1,282,925
Property, plant and equipment	1,384,217	625,421
Long-term investment	568,003	425,000
Total Assets	$3,516,471	$2,333,346
Current Liabilities
Short-term borrowings	$306,376	$170,419
Current portion of long-term debt	155,000	168,000
Accounts payable	254,111	286,257
Accrued liabilities	273,658	166,983
Income taxes payable	97,735	178,911
Total Current Liabilities	1,086,880	970,570
Long-term debt	500,000	300,000
Deferred income taxes	215,017	262,404
Total Liabilities	1,801,897	1,532,974
Common stock	$425,250	$125,000
Additional paid-in capital	356,450	344,335
Retained earnings	932,874	331,037
Total Stockholders' Equity	1,714,574	800,372
Total Liabilities and Stockholders' Equity	$3,516,471	$2,333,346

Selected Income Statement Data for the year ending December 31, Year 7
Net sales	$4,885,340
Cost of goods sold	(2,942,353)
Selling expenses	(884,685)
Operating income	1,058,302
Interest expense	(55,240)
Earnings before income taxes	1,003,062
Income tax expense	(401,225)
Net income	$601,837

Selected Statement of Cash Flow Data for the year ending December 31, Year 7
Cash flows from operations	$1,456,084
Capital expenditures	$745,862

Required

Wilmington Corporation’s quick ratio changed by what percentage from Year 6 to Year 7?

Select one:

a. + 9.1%

b. + 13.0%

c. + 15.0%

d. + 87.0%

2)

Selected financial data for Wilmington Corporation is presented below.

WILMINGTON CORPORATION
Balance Sheet
	Dec. 31, Year 7	Dec. 31, Year 6
Current Assets
Cash and cash equivalents	$548,001	$289,834
Marketable securities	166,106	187,064
Accounts receivable (net)	245,468	274,645
Inventories	403,268	371,578
Prepaid expenses	52,601	24,234
Other current assets	83,053	85,029
Total Current Assets	1,498,497	1,232,384
Property, plant and equipment	1,384,217	625,421
Long-term investment	568,003	425,000
Total Assets	$3,450,717	$2,282,805
Current Liabilities
Short-term borrowings	$306,376	$170,419
Current portion of long-term debt	155,000	168,000
Accounts payable	241,405	271,944
Accrued liabilities	259,975	158,634
Income taxes payable	92,848	169,965
Total Current Liabilities	1,055,604	938,962
Long-term debt	500,000	300,000
Deferred income taxes	204,266	249,284
Total Liabilities	1,759,870	1,488,246
Common stock	$425,250	$125,000
Additional paid-in capital	356,450	344,335
Retained earnings	909,147	325,224
Total Stockholders' Equity	1,690,847	794,559
Total Liabilities and Stockholders' Equity	$3,450,717	$2,282,805

Selected Income Statement Data for the year ending December 31, Year 7
Net sales	$4,885,340
Cost of goods sold	(2,960,267)
Selling expenses	(884,685)
Operating income	1,040,388
Interest expense	(55,240)
Earnings before income taxes	985,148
Income tax expense	(401,225)
Net income	$583,923

Selected Statement of Cash Flow Data for the year ending December 31, Year 7
Cash flows from operations	$1,383,280
Capital expenditures	$745,862

Required

Wilmington Corporation’s cash flow from operations to total debt ratio in Year 7 was:

Select one:

a. 1.44

b. 2.11

c. 0.79

d. 1.31

3)

Hasten Corporation has the following metrics for the year.

Amount in days
Days sales outstanding	36.5
Days payables outstanding	24.8
Days inventory outstanding	59.1

The cash conversion cycle for the year is:

Select one:

a. 61.3 days

b. 2.2 days

c. None of these are correct.

d. 47.4 days

e. 70.8 days

4)

Which of the following are not one of the five forces that determine a company's competitive intensity? (Select as many as apply.)

Select one or more:

A. Bargaining power of suppliers

B. Threat of substitution

C. Ability to obtain financing

D. Threat of regulatory intervention

E. Threat of entry

Answer 1

Solution

1.

Wilmington Corporation’s quick ratio changed by what percentage from Year 6 to Year 7

Percentage change in quick ratio of year 6 to year 7

=( Quick ratio for year 7- quick ratio for year 6)/quick ratio for year 6

Quick ratio for year 6 =(cash and cash equivalents+ marketable securities+Account receivable)/current liabilities

=($305088+187064+289100)/970570

=781252/970570

=0.80

Quick ratio for 2017 =(cash and cash equivalents+ marketable securities+Account receivable)/current liabilities

(576843+166106+258387)/1086880

1001336/1086880

0.92

Percentage change in quick ratio of year 6 to year 7

=( 0.92-0.80)/0.80

=0.15 = 15%

So option (c)15% is correct.

2.

Wilmington Corporation’s cash flow from operations to total debt ratio in Year 7

Cash flow from operation to total debt ratio

= Cash flow from operating activities/ total debt

Total debt = short term borrowing + current portion of long term debt + long term debt

Total debt= 306376 + 155000 + 500000

$961376

Cash flow from operation to total debt ratio

= 1383280/961376

= 1.44

So option( a) is correct

3.

Cash conversion cycle = days of sales outstanding + days of inventory outstanding - days of payable outstanding

36.5+59.1-24.8

Cash conversion cycle =70.8 days

Hence option (e) is correct

4.

According to the Michael porter there are five forces which determine company's competitive intensity which are as follow

1.Threat of substitute

2.Threat of new entrance

3.Bargaining power of customers

4.Bargaining power of supplies

5.Competative rivalry

Hence threat of regulatory intervention (D) and ability to obtain financing (C) are not the part of five forces that determine company's competitive intensity