BALANCE SHEET

Cash -$75,000

Accounts receivables -100,000

Inventory -95,000

Fixed assets - $500,000

Total assets -$770,000

Account payable -$135,000

Other current liabilities -50,000

Long-term debt - $150,000

Stockholders equity (75,000 shares) -$435,000

Total liability and equity - $770,000

INCOME STATEMENT

Sales - $1,250,000

Less: Cost of goods sold - 635,000

Less: All expenses (incl. taxes) - 370,000

Net Income - $245,000

b.) What is the current market price of the firms stock (P0) if the firms P/E ratio is 11.5? Hint: Note that a firms earnings per share = NI/S, where NI = earnings. Therefore P0 = P/E x E/S. Now, A proposal is made by this firms CFO to increase the current ratio to 2x. The CFO suggests that the firm issue 5,000 new shares of common stock (ignore any flotation costs) and the estimated price per share based on secondary market conditions will be $28.50. The proceeds from the equity issue will be added to the firms cash account. Assuming everything else remains the same, determine the impact on the firms liquidity position by re-calculating the current ratio, net working capital, the ratio of current assets/total assets, and the cash conversion period