Question

You must show the financial statement in all its parts including header, dollar signs and double line in the totals. Points will be subtracted from the exercises if these parts are not completed properly.

7-1 Hindelang corporation has $1,312,500 in current assets and $525,000 in current liabilities. Its initial level is $375,000 and it will raise funds through additional notes payable and use them to increase inventory. How much can Hidelang's short- term debt (notes payable) increase without pushing its current ratio below 2.0? What wil be the firm's quick ratio after Hidelang has raised the maximum amount of short-term funds?

7-4 Coastal Packaging's ROE last year was only 3 percent, but its management has developed a new operating plan designed to improve things. The new plan calls for a total debt ratio of 60 percent, which will result in interest charges of $300 per year. Management projects an EBIT of $1,000 on sales of $10,000 and it expects ti have a total assets turnover ratio of 2.0 times. under these conditions, the average tax rate will be 30 percent. If the changes are made, what return on equity (ROE) will Coastal earn? What is the ROA?

Answer 1