# fm4 7 - × 0.1 = \$50,000 Net income = \$2,000,000 × 0.05 =...

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Answers and Solutions: 4 - 7 4-9 Present current ratio = \$525,000 \$1,312,500 = 2.5. Minimum current ratio = NP + \$525,000 NP + \$1,312,500 Δ Δ = 2.0. \$1,312,500 + NP = \$1,050,000 + 2 NP NP = \$262,500. Short-term debt can increase by a maximum of \$262,500 without violating a 2 to 1 current ratio, assuming that the entire increase in notes payable is used to increase current assets. Since we assumed that the additional funds would be used to increase inventory, the inventory account will increase to \$637,500, and current assets will total \$1,575,000. Quick ratio = (\$1,575,000 - \$637,500)/\$787,500 = \$937,500/\$787,500 = 1.19 × . 4-10 TIE = EBIT/INT, so find EBIT and INT. Interest = \$500,000
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Unformatted text preview: × 0.1 = \$50,000. Net income = \$2,000,000 × 0.05 = \$100,000. Pre-tax income = \$100,000/(1 - T) = \$100,000/0.7 = \$142,857. EBIT = \$142,857 + \$50,000 = \$192,857. TIE = \$192,857/\$50,000 = 3.86 × . 4-11 1. Debt = (0.50)(Total assets) = (0.50)(\$300,000) = \$150,000. 2. Accounts payable = Debt – Long-term debt = \$150,000 - \$60,000 = \$90,000 3. Common stock = Total liabilities and equity- Debt - Retained earnings = \$300,000 - \$150,000 - \$97,500 = \$52,500. 4. Sales = (1.5)(Total assets) = (1.5)(\$300,000) = \$450,000. 5. Inventory = Sales/5 = \$450,000/5 = \$90,000. 6. Accounts receivable = (Sales/365)(DSO) = (\$450,000/365)(36.5) = \$45,000....
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