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# Homework 1 Dr. Cook Name: _____________________________ Due Date: January 17, 2012 1. The Speairs Company has \$1,750,000 in current assets and

"The Speirs Company has \$1,750,000 in current assets and \$700,000 in current liabilities. Its initial inventory level is \$500,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Speirs's short-term debt (notes payable) increase inventory without violating a current ratio of 2 to 1? What will be the firm's quick ratio after Speirs has raised the maximum amount of short-term funds."
Homework 1 Name: _____________________________ Dr. Cook Due Date: January 17, 2012 1. The Speairs Company has \$1,750,000 in current assets and \$700,000 in current liabilities. Its initial inventory level is \$500,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Speirs’s short-term debt (notes payable) increase inventory without violating a current ratio of 2 to 1? What will be the firm’s quick ratio after Speirs has raised the maximum amount of short-term funds? 2. The Dlabay Company had a quick ratio of 1.4, a current ratio of 3.0, an inventory turnover of 6 times, total current assets of \$675,000, and cash and marketable securities of \$100,000 in 2007. What were Dlabay’s annual sales and its ACP for that year? Strategic Sourcing and Purchasing Management
Homework 1 Name: _____________________________ Dr. Cook Due Date: January 17, 2012 3. The Blacksburg Furniture Company, a manufacturer and wholesaler of high-quality home furnishings, has been experiencing low profitability in recent years. As a result, the board of directors has replaced the president of the firm with a new president, Jerry Stevens, who has asked you to make an analysis of the firm’s financial position using the DuPont system. The most recent industry average ratios and Blacksburg’s financial statements are as follows: Industry Average Ratios Current Ratio 2 Sales/fixed assets 6 Debt/total assets 30% Sales/total assets 3 Times-interest earned 7 Net profit on sales 3% Sales/inventory 10 Return on total assets 9% Average Collection Period 24 days Return on common equity 12.8% Blacksburg Furniture Company Balance Sheet as of December 31, 2010 (Millions of Dollars) Assets Liabilities and Equity Cash 30 Accounts payable 30 Marketable Securities 22 Notes payable 30 Net Receivable 44 Other current liabilities 14 Inventories 106 Total current liabilities 74 Total Current Assets 202 Long-term debt 16 Total Liabilities 90 Gross fixed assets 150 Common stock 76 Less depreciation 52 Retained earnings 134 Net fixed assets 98 Total stockholders equity 210 Total Assets 300 Total liabilities and equity 300 Blacksburg Furniture Company Income Statement for the Year Ended December 31, 2010 (Millions of Dollars) Net Sales 530 Cost of Goods Sold 440 Gross Profit 90 Selling Expenses 49 Depreciation Expense 8 Interest Expense 3 Total Expenses 60 Net Income Before Tax 30 Taxes (40%) 12 Net Income 18 Strategic Sourcing and Purchasing Management
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