Question

In: Finance

Consider the following ratios and choose the appropriate managerial strategy below:

Consider the following ratios and choose the appropriate managerial strategy below:

Fixed Asset Newness ratio of 62%,

Current Ratio of 1.7

Days of Cash at 19 days

Debt to Equity 2.8

Group of answer choices: How can we decide?

  1. Equipment doesn't have anything to do with the financial information provided.

  2. This company has very new equipment and a very good cash position

  3. This company has too much debt, so new equipment is a poor choice

  4. This company has very old equipment, but they have the cash to purchase new equipment

Solutions

Expert Solution

Answer:

As the degree of newness is 62%, which indicates that the company has newer equipment. If a company has a degree of newness less than 40% then it is using its old equipment. The company’s days of cash is 19 days which means the company receives payments in 19 days. The company has a debt equity ratio which is 2.8 times higher than the equity so buying new equipment will not be good option.

Hence, the correct statements are Option B and Option C.

jeff jeffy answered 2 years ago
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