7. If a same as they were before total assets decreased, the firms:

firm increases its total assets but its debt ratio, net profit margin and net sales (i.e., revenue) remain the

ROE would not change.

ROE could either increase or decrease depending on the interaction between the equity multiplier and

the days payable ratio.

ROE would increase.

ROE would decrease.

There is insufficient information to determine the effect on ROE.

8. Which of the following steps is most likely to decrease a companys cash conversion cycle (assume that none of the following actions has any impact on sales or COGS)? Note: there more be more than one answer for this questions record the letter of all that apply (this is an all or nothing answer).

Change its receivables policy from net 35 to net 40 (note that this action will increase the firms average collection period from 35 days to 40 days).

Change its payables policy to pay bills in 40 days instead of in 30 days.

Decrease the inventory conversion period from 50 days to 40 days.

Reduce the firms notes payable (i.e., bank loan) balance by 20%.

None of the actions listed above will decrease the firms cash conversion cycle.

9. Which of the following actions would decrease the current ratio (assuming an initial current ratio of 0.8, and current liabilities equal to $1,000,000)?

Borrow $100,000 in short term debt and deposit this money (i.e., $100,000) into the firms cash account.

Borrow $200,000 in long-term debt to buy $200,000 worth of additional inventory.

Borrow $50,000 of short-term debt and use the proceeds to pay all operating expenses sooner, thus

lowering accruals (i.e., accrued expenses) by $50,000.

Sell $250,000 of fixed assets to pay off an equal amount of long-term debt.

None of the above that is, none of the actions listed about will decrease the current ratio.