Question
19. Your company's sales were $2,000 last year, and they are forecasted to rise by 100 percent during the coming year. Here is the latest
19. Your company's sales were $2,000 last year, and they are forecasted to rise by 100 percent during the coming year. Here is the latest balance sheet:
Cash | $ 100 | Accounts payable | $200 | |||
Receivables | 300 | Notes payable | 200 | |||
Inventory | 800 | Accruals | 20 | |||
Total current assets | $1,200 | Total current liabilities | $420 | |||
Long-term debt | 780 | |||||
Common stock | 400 | |||||
Net Fixed Assets | 800 | Retained earnings | 400 | |||
Total assets | $2,000 | Total liabilities and equity | $2,000 |
Fixed assets were used to only 80 percent of capacity last year, and year-end inventory holdings were $100 greater than were needed to support the $2,000 of sales. The other current assets (cash and receivables) were at their proper levels. All assets would be a constant percentage of sales if excess capacity did not exist; that is, all assets would increase at the same rate as sales if no excess capacity existed. The company's after-tax profit margin will be 3 percent, and its payout ratio will be 80 percent. If all additional funds needed (AFN) are raised as notes payable and financing feedbacks are ignored, what will the current ratio be at the end of the coming year?
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A. a. 1.17
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B. b. 1.93
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C. c. 2.19
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D. d. 2.50
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E. e. 2.73
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