Answer each of the questions in the following unrelated situations.

(a) The current ratio of a company is 6:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $544,000, what is the amount of current liabilities?

(b) A company had an average inventory last year of $200,000 and its inventory turnover was 6. If sales volume and unit cost remain the same this year as last and inventory turnover is 8 this year, what will average inventory have to be during the current year? (Round answer to 0 decimal places, e.g. 125.)

(c) A company has current assets of $99,000 (of which $39,000 is inventory and prepaid items) and current liabilities of $39,000. What is the current ratio? What is the acid-test ratio? If the company borrows $17,000 cash from a bank on a 120-day loan, what will its current ratio be? What will the acid-test ratio be? (Round answers to 2 decimal places, e.g. 2.50.)

(d) A company has current assets of $654,000 and current liabilities of $240,000. The board of directors declares a cash dividend of $183,000. What is the current ratio after the declaration but before payment? What is the current ratio after the payment of the dividend? (Round answers to 2 decimal places, e.g. 2.50.)

Bank Three currently has $800 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 10 percent of transaction deposits.

a. If the Federal Reserve decreases the reserve requirement to 8 percent, show the balance sheet of Bank Three and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume Bank Three withdraws all excess reserves and gives out loans and that borrowers eventually return all of these funds to Bank Three in the form of transaction deposits.
b. Redo part (a) using a 16 percent reserve requirement.
  

If the Federal Reserve decreases the reserve requirement to 8 percent, show the balance sheet of Bank Three and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume Bank Three withdraws all excess reserves and gives out loans and that borrowers eventually return all of these funds to Bank Three in the form of transaction deposits. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)

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Redo part (a) using a 16 percent reserve requirement. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)

Product Planning with Taxes
Assume that last year, Cliff Consulting, a firm in Berkeley, CA, had the following contribution income statement:

(a) Determine the annual break-even point in sales revenue.

Round contribution margin ratio to two decimal places for your calculation. Round final answer to nearest dollar.
$Answer

(b) Determine the annual margin of safety in sales revenue.

Use rounded answer from above for calculation.
$Answer

(c) What is the break-even point in sales revenue if management makes a decision that increases fixed costs by $80,000?

Use rounded contribution margin ratio (2 decimal places) for your calculation.
Round your answer to the nearest dollar.
$Answer

(d) With the current cost structure, including fixed costs of $440,000, what dollar sales revenue is required to provide an after-tax net income of $250,000?

Use rounded contribution margin (2 decimal places) for calculation. Round your answer to the nearest dollar.
$Answer

(e) Prepare an abbreviated contribution income statement to verify that the solution to requirement (d) will provide the desired after-tax income.

Use rounded contribution margin (2 decimal places) for variable cost/contribution margin computations. Round your answers to the nearest dollar.
Use rounded answers for subsequent calculations. Do not use negative signs with any of your answers.

Multiple Product Planning with Taxes
In the year 2017, Pyramid Consulting had the following contribution income statement:

(a) Determine the annual break-even point in sales revenue.

Round contribution margin ratio to two decimal places for your calculation. Round final answer to nearest dollar.  
$Answer

(b) Determine the annual margin of safety in sales revenue.

Use rounded answer from above for calculation.
$Answer

(c) What is the break-even point in sales revenue if management makes a decision that increases fixed costs by $57,000?

Use rounded contribution margin ratio (2 decimal places) for your calculation.
$Answer

(d) With the current cost structure, including fixed costs of $285,000, what dollar sales revenue is required to provide an after-tax net income of $200,000?

Use rounded contribution margin (2 decimal places) for calculation. Round your answer to the nearest dollar.  
$Answer

(e) Prepare an abbreviated contribution income statement to verify that the solution to requirement (d) will provide the desired after-tax income.

Use rounded contribution margin (2 decimal places) for variable cost/contribution margin computations. Round your answers to the nearest dollar. Use rounded answers for subsequent calculations. Do not use negative signs with any of your answers.

Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $27.3 million in perpetuity. The current required return on the firm’s equity is 13 percent and the firm distributes all of its earnings as dividends at the end of each year. The company has 2.04 million shares of common stock outstanding and is subject to a corporate tax rate of 22 percent. The firm is planning a recapitalization under which it will issue $37.1 million of perpetual 6.2 percent debt and use the proceeds to buy back shares.

a-1. Calculate the value of the company before the recapitalization plan is announced. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)

a-2. What is the price per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b-1. Use the APV method to calculate the company value after the recapitalization plan is announced. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)

b-2. What is the price per share after the recapitalization is announced? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

c-1. How many shares will be repurchased? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)

c-2. What is the price per share after the recapitalization and repurchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

d. Use the flow to equity method to calculate the value of the company’s equity after the recapitalization. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)

Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $31.7 million in perpetuity. The current required return on the firm’s equity is 12 percent and the firm distributes all of its earnings as dividends at the end of each year. The company has 2.26 million shares of common stock outstanding and is subject to a corporate tax rate of 23 percent. The firm is planning a recapitalization under which it will issue $40.4 million of perpetual 6.3 percent debt and use the proceeds to buy back shares.