Question
In: Finance
Changing Levels of Current Liabilities Firm B has the following levels of assets, liabilities, and equity:...
Changing Levels of Current Liabilities
Firm B has the following levels of assets, liabilities, and equity:
Assets Liabilities and Equity
Current Assets $20,000 Current Liabilities $10,000
Fixed Assets 42,000 Long-term Debt 37,000
Total 62,000 Equity 15,000
Total 62,000
The firm’s current liabilities cost approximately 4% annually to maintain, and the average annual cost of its long-term funds is 15%.
Calculate the firm’s initial values of 1) the ratio of current liabilities to total assets, 2) the annual cost of financing, and 3) net working capital.
If the firm shifts $5,000 of current liabilities to long-term funds, find the value of 1) the ratio of current liabilities to total assets, 2) the annual cost of financing, and 3) net working capital.
Returning to the original balance sheet, assume the firm shifts $5,000 of long-term funds to current liabilities, find the value of 1) the ratio of current liabilities to total assets, and 2) the annual cost of financing, and 3) net working capital.
Summarize your findings by describing the relationship between risk and return and the three different liability structures found in a, b, and c.
Solutions
jeff jeffy answered 10 months agoRelated Solutions
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Multiple Choice
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$0
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A firm has the following balance sheet:
Assets
Liabilities and Equity
Cash
$
5,000
Accounts payable
$
5,000
Accounts receivable
153,000
Long-term debt
109,000
Inventory
89,000
Common stock ($8 par;
32,000
4,000 shares outstanding)
Plant and equipment
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Additional paid-in capital
148,000
Retained earnings
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A firm has the following balance sheet: Assets Liabilities and Equity Cash $ 5,000 Accounts payable...
A firm has the following balance sheet:
Assets
Liabilities and Equity
Cash
$
5,000
Accounts payable
$
5,000
Accounts receivable
158,000
Long-term debt
111,000
Inventory
72,500
Common stock ($9 par;
31,500
3,500 shares outstanding)
Plant and equipment
210,000
Additional paid-in capital
150,000
Retained earnings
148,000
$445,500
$445,500
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QUESTION 6 Define the following terms a. Current assets b. Non current assets c. Current liabilities...
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a. Current assets
b. Non current assets
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Problem 10-08
A firm has the following balance sheet:
Assets
Liabilities and
Equity
Cash
$
20,000
Accounts payable
$
20,000
Accounts receivable
152,000
Long-term debt
111,000
Inventory
92,000
Common stock ($6 par;
24,000
4,000 shares outstanding)
Plant and equipment
190,000
Additional paid-in capital
157,000
Retained earnings
142,000
$454,000
$454,000
a) Construct a new balance sheet showing the impact of a
three-for-one split. If the current market price of the stock is
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Equity 590 Next year, there are two possible values for its
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Problem 10-08 A firm has the following balance sheet: Assets Liabilities and Equity Cash $ 25,000...
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A firm has the following balance sheet:
Assets
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Cash
$
25,000
Accounts payable
$
25,000
Accounts receivable
156,000
Long-term debt
103,000
Inventory
79,000
Common stock ($7 par;
21,000
3,000 shares outstanding)
Plant and equipment
190,000
Additional paid-in capital
155,000
Retained earnings
146,000
$450,000
$450,000
Construct a new balance sheet showing the impact of a
two-for-one split. If the current market price of the stock is $50,
what is the price after the split? Round the...
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11. The following accounts are listed in order of
liquidity...
A. Current Assets
B. Current Liabilities
C. Both A and B
D. Long-term assets
E. none of the above
13. Retained earnings are found on the...
A. Balance Sheet
B. Income Statement
C. Neither A nor B
D. Noth A and B
15. A credit entry has the following effect on a liability
account..
A. Increases
B. Decreases
C. No effect
17. Goldstone LLC purchases a machine on credit a...
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