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

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
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
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

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....
View Full Document

This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

Ask a homework question - tutors are online