Financial data ($ thousands) for Wisconsin Wilderness, Inc., are reproduced below:

Short-term liabilities. . . . $ 500

Long-term liabilities . . . . 800

Equity capital . . . . . . . . . 1,200

Cash from operations . . . 300

Pretax income . . . . . . . . . 200

Interest expense . . . . . . . 40

Indicate the effect that each of the Wisconsin Wilderness transactions and events (1 through 10) below has on each of the four ratios below. (Each transaction or event is independent of others—consider only the immediate effect.) Use I for increase, D for decrease, and NE for no effect.

a. Total debt to equity.
b. Long-term debt to equity.
c. Earnings to fixed charges (exceeds 1.0 before transactions and events).
d. Cash flow to fixed charges (exceeds 1.0 before transactions andevents).

Transcribed Image Text:

a b C 1. Increase in tax rate. 2. Retire bonds-paid in cash 3. Issue bonds to finance expansion 4. Issue preferred stock to finance expansion 5. Depreciation expense increases. 6. Collect accounts receivable. 7. Refinance debt resulting in higher interest cost. 8. Capitalize higher proportion of interest expense. 9. Convert convertible debt into common stock 10. Acquire inventory on credit.