Review Set 2- unit1

Review Set 2- unit1 - Review Set 2 - FIN320-6, 9 - Winter...

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Review Set 2 -- FIN320-6, 9 -- Winter 2011 Thought Questions 1. The Dullpore Corp. instituted a just-in-time inventory program so that the amount of inventory that they hold at any one time is greatly reduced. Did Dullpore decrease or increase its liquidity? Explain. Would the current ratio for Dullpore decrease or increase? (assume that when Dullpore freed up cash it was paid out as dividends to shareholders.) Explain. Does this change indicate that liquidity has increased or decreased? Would the cash cycle increase or decrease? Explain. Does this change indicate that liquidity has increased or decreased? If Dullpore increases its line of credit, would liquidity increase or decrease? Explain. What should happen to Dullpore’s cash balances when they increase their line of credit? Why? What would happen to Dullpore’s current ratio? According to this change is Dullpore more or less liquid? 2. Why is a low days-sales in inventory ratio desirable? What action could a firm undertake that would make this ratio zero? Why might this policy not be a good idea? Which firm has a lower days-sales in inventory ratio: Meijer or Israel Furniture? Does this difference in the days-sales in inventory ratio relate primarily to efficiency or some other factor? Explain. 3. Which firm would have a higher total asset turnover ratio, Consumer’s Energy or Pizza Hut?
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Review Set 2- unit1 - Review Set 2 - FIN320-6, 9 - Winter...

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