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1. Zhang Company has a loan agreement that provides it with cash today, and the company...

1. Zhang Company has a loan agreement that provides it with cash today, and the company must pay $25,000 4 years from today. Zhang agrees to a 6% interest rate. The present value of 1 (single sum) for 4 periods at 6% is 0.7921. What is the amount of cash that Zhang Company receives today?

2.

The current year-end balance sheet data for a company are shown below.

Assets:
Cash $ 38,000
Marketable securities 45,000
Accounts receivable (net) 127,500
Merchandise inventory 149,500
Long-term investments 135,000
Plant assets (net)  517,500
Total assets $ 1,012,500

Liabilities and equity:
Accounts payable $ 148,700
Accrued liabilities 90,000
Notes payable (secured by plant assets) 254,800
Common stock ($12 par) 180,000
Contributed capital in excess of par 135,000
Retained earnings  204,000
Total liabilities and equity $1,012,500

Calculate the following ratios. Be sure to show your work.

Required:

(a) working capital
(b) current ratio
(c) acid-test ratio.

business   accounting   
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Answer #1

Answer to Question 1:

Amount repaid = $25,000
Time period = 4 years
Interest rate = 6%

Amount received = $25,000 * PV of $1 (6%, 4)
Amount received = $25,000 * 0.7921
Amount received = $19,802.50

So, Zhang Company received $19,802.50 today.

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