Chapter_20_and_21_Questions[1]

Chapter_20_and_21_Questions[1] - Chapter 20 and 21 Notes...

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Chapter 20 and 21 Notes, Questions, and Answers 1 Chapter 20 1.1 Liquidity Raitos Current ratio = current assets currentliabilities (1) Quick ratio = cash + short terminvestments + receivable current liabilities (2) Accounts receivable turnover = credit sales Average Receivables (3) Inventory turnover = Costs of goods sold Average inventory (4) Number of days of receivables = Accounts receivable Sales on Credit/ 365 (5) Number of days of inventory = Inventory Cost of goods sold/ 365 (6) 1.2 Operating Cycle operating cycle= number of days of inventory + number of days of receivables net operating cycle = number of days of inventory + number of days of receivables - number of days of payables 1.3 Terms of Sale Effective Annual Rate=(1 + discount discount price 365 /extra days credit ) - 1 1.4 Short-Term Borrowing Line of credit Cost = Interest + Commitmentfee LoanAmount (7) 1
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Banker’s acceptance at an all-inclusive rate. Cost = Interest LoanAmount - Interest (8) Commercial paper Cost = Interest + Dealers commission + Backupcosts Loan amount - Interest (9) 1.5 Credit Analysis Credit Analysis - Procedure to determine the likelihood a customer will pay its bills. a potential customer. Financial ratios can be calculated to help determine a customers ability to pay its bills. 1.5.1 Multiple Discriminant Analysis A technique used to develop a measurement of solvency, sometimes called a Z Score. Edward Altman developed a Z Score formula that was able to identify bankrupt firms approximately 95% of the time. 2
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2 Chapter 21 2.1 Motives Synergy Growth Acquiring unique resources Increasing market power Diversification Bootstrapping earnings 2.2 Types of Mergers Statutory Subsidiary Horizontal Vertical Conglomerate 2.3 Form of Acquisition 3
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Chapter_20_and_21_Questions[1] - Chapter 20 and 21 Notes...

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