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Sikh

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Chap.4
13. a. Current ratio will be unaffected. Inventories are replaced with either cash or accounts receivable, but total current assets are unchanged. b. Current ratio will be unaffected. Due trade payables are replaced with the bank loan, but total current liabilities are unchanged. c. Current ratio will be unaffected. Receivables are replaced with cash, but total current assets are unchanged. d. Current ratio will be unaffected. Inventories replace cash, but total current assets are unchanged. 17. Days in inventory =
Annual cost of goods sold = Inventory x 365/Days in inventory = $10,000 365/30 = $121,667 Inventory turnover = = 12.167 times per year. 21. Debt-equity ratio = = .4 Rearrange the equation to calculate Long-term debt: Long-term debt = Debt-equity ratio Equity Long-term debt = .4 $1,000,000 = $400,000 Current ratio = = 2.0 and Current assets = $200,000.
So Current liabilities = = $200,000/2 = $100,000
Since the only current liabilities are notes payable, Notes payable = $100,000 Total liabilities = current liabilities + long-term debt =$100,000+$400,000 = $500,000 Total assets = total liabilities + equity = $500,000 + $1,000,000 = $1,500,000 Total debt ratio = $500,000/$1,500,000 = .33

23. EBIT = Revenues – COGS – Depreciation = $3,000,000 – $2,500,000 – $200,000 = $300,000 Interest expense = interest rate × debt face value = 8% × 1,000,000 = $80,000 Times interest earned = EBIT/Interest expense = 300,000/80,000 = 3.75 Chap.8
10. NPV = 3,000 + 800 annuity factor(10%, 6 years) = $484.21 At this discount rate, you should accept the project. You can solve for IRR by setting the PV of cash flows equal to 3,000 on your calculator and solving for the interest

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