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CHAPTER 3-6

# CHAPTER 3-6 - Total \$208,998 \$19,318 S \$228,316 Total...

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Total \$208,998 \$19,318 S \$228,316 Total liabilities and owners' equity \$295,432 \$29,087 S \$324,519 The firm used \$29,087 in cash to acquire new assets. It raised this amount of cash by increasing liabilities and owners’ equity by \$29,087. In particular, the needed funds were raised by internal financing (on a net basis), out of the additions to retained earnings, an increase in current liabilities, and by an issue of long-term debt. 17. a. Current ratio = Current assets / Current liabilities Current ratio 2008 = \$68,726 / \$61,434 = 1.12 times Current ratio 2009 = \$76,213 / \$64,203 = 1.19 times b. Quick ratio = (Current assets – Inventory) / Current liabilities Quick ratio 2008 = (\$67,726 – 38,760) / \$61,434 = 0.49 times Quick ratio 2009 = (\$76,213 – 42,650) / \$64,203 = 0.52 times c. Cash ratio = Cash / Current liabilities Cash ratio 2008 = \$8,436 / \$61,434 = 0.14 times Cash ratio 2009 = \$10,157 / \$64,203 = 0.16 times d. NWC ratio = NWC / Total assets NWC ratio 2008 = (\$68,726 – 61,434) / \$295,432 = 2.47% NWC ratio 2009 = (\$76,213 – 64,203) / \$324,519 = 3.70% e. Debt-equity ratio = Total debt / Total equity Debt-equity ratio 2008 = (\$61,434 + 25,000) / \$208,998 = 0.41 times Debt-equity ratio 2009 = (\$64,206 + 32,000) / \$228,316 = 0.42 times Equity multiplier = 1 + D/E Equity multiplier 2008 = 1 + 0.41 = 1.41 Equity multiplier 2009 = 1 + 0.42 = 1.42 f.
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