Question

aneal mat e Analyais re a opro's Mue choce (30 ed so whh ofe n cty a Fincial verage A Wkng epil Cet rat Acidet (uick) source of financing which of the llowing wod not be comsdered 2 a Common stockholders equity A) Notes reeevable DI Debentures ORetained carng whh of he f wing inderi wod y espct to have tde highest iveory surnover B) Department store A) Restant D Car dealor O Jewelry sone A company s corrent ranio is 1 5. If the company uses cash to rctire notes payable due within one year, would this traesaction inCrease or decrease the current atio and return on asets ratio? 4. A) Current ratio: Decrease: Return on asets: Increase B) Current ratioc Decrease: Return on assets Decrease C) Curent ratioc Increase: Return on assets Increase D) Current ratio: lacrease: Return on assets: Decrease Two companies, A and B, both have SI million in assets, earnings before interest and taxes (EBIT) ofS160,000, and the same tax rate. Company A is all equity financed, and Company B is 50% debt financed and 50s equity financeid. Ir Company B's pretax cost of debt is 8%, then Company A will have a ROA that is and a ROE that is than Company B's ROA lower higher Jower higher ROE higher higher lower lower A) B) C) D)

Answer 1

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Ans-1 (B) financial reverage The foule main liquidily seatie are coreseent, Acistelle gatio, cash Ratio &Working Capital Ratio Anil-2 LA) Noter Receivable Major sources of financing are equily, Debt, Debentures, Venture Capital Ans-3 (B) Department Store I Department stories have high volume & low margin sollthese industries would expect to have highest inventory turnover. And-4 (A) Current Asseto Decrease ; ROA increase Li Cullent Afret - 10000 € Current liabilitee - 7000 T & Notes payable = 2000 If company pays 20000 & Notce payable then Laurent Arreta 8000 then new curent Ratio CAZ 8000 - 1.14 7000 sellnet Income 4000 Previour ROA 24000/10000 = 0.40 Aptity decrease in Cullert Arret nese RUA = 4000/8000-0.50 so ROA increase due to decreare in CA