For many years, Borders Group and Barnes and Noble were the dominant booksellers in the United States. They experienced rapid growth, and in the process they forced many small, independent bookstores out of business. Recently, Borders fi led for bankruptcy.

It was the victim of its inability to change with the times. It did not develop a viable business plan for dealing with digital books and online sales. Below is fi nancial information

(in millions) for the two companies, taken from the annual reports of each company one year before Borders fi led for bankruptcy.

Borders Barnes and Noble Current assets $ 978.7 $1,719.5 Total assets 1,415.6 3,705.7 Current liabilities 918.1 1,724.4 Total liabilities 1,257.3 2,802.3 Net income/(loss) (109.4) 36.7 Interest expense 24.1 28.2 Tax expense/(income tax benefit) (31.3) 8.4 Instructions

(a) Compute the current ratio for each company.

(b) Compute the debt to assets ratio and times interest earned for each company. (Hint: A tax benefi t means that rather than pay taxes, the company was due a refund because of its losses. For ratio purposes, a tax benefi t is treated the opposite of tax expense.)

(c) Discuss the relative liquidity and solvency of each company. Did the bankruptcy of Borders seem likely?