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1. Brealey, Chapter 4 (Pg 73-74 of Customised Text), Question 1 (b), (c), (e), (f), (h), (i), (j).

Total debt ratio = $17,990/$27,503=0.65.
Times interest earned = EBIT/int. payments = $2,566/$685 = 3.75.
Current ratio = current assets/current liabilities = $3525/$4794 = 0.74.
Quick ratio = cash + marketable securities + receivable/ current liabilities = $89+$2,382/$4794 = 0.52.
Inventory turnover = cost of goods sold/inventory at start of year = $4060/$212.5 = 19.11.
Days to inventory = inventory at start of year/COGS = 365/19.106 = 19.1days.
Avg collecting period = receivable at start of yr / avg daily sales = 365/5.42 =67.39days.

2. Financial data as at 31 December 2009 extracted from PQZ Company are as follows: | $’000 | Cash & Marketable Securities | 2,050 | Accounts Receivable | 2,800 | Inventories | 4,280 | Current Liabilities | 6,750 | Long-term Debt | 7,660 | Total Assets | 27,900 |

Suppose at year end, PQZ Company had an unused bank overdraft facility of $300,000 and invested the proceeds in marketable securities.

Would the company be (a) more or less liquid and (b) more or less leveraged? Calculate appropriate ratios to support your answer.

Old current ratio: (2,050 + 2,800 + 4,280)/ 6750 = 1.35

New current ratio: (2350 + 2,800 + 4,280) / 7,050 = 1.34

The difference is insignificant. Hence, we are unable to conclude whether the company is more or less liquid.

Old total debt ratio: (6,750 + 7,660) / (27,900 + 300) = 14,410/28,200 = 0.52%

New total debt ratio (6,750 + 7,660 + 300)/(27, 900 + 300) = 14,710/28,200) = 0.53

3. Brealey, Chapter 4 (Pg 76 of Customised Text), Question 17

4. In the past year, TUV had revenue of $3m, COGS of $2m and operating expenses of $200,000. The firm has a single outstanding debt of $1m on which it pays an interest rate of 8%. What is the firm’s

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