BlueHat, Inc. is planning to use excess cash that the company has in its checking account (i.e., reduce cash) to pay off a long term loan balance. (i.e., decrease long-term debt). BlueHat believes that this event will have no affect on either sales or costs, and therefore no affect on net income.

All else constant, this new policy should cause the firm's debt ratio (assuming an initial debt ratio of 45%) to:

a. Decrease

b. Increase

c. No Change

d. Not enough information is provided to answer this question.

12. GreenChapeau, Inc. is planning to increase its short-term loans (i.e., increase notes payable) to pay for an increase in the firm's basic inventory level (i.e., increase inventory). GreenChapeau believes that this event will have no affect on either sales or costs, and therefore no affect on net income.

All else constant, this new policy should cause the firm's current ratio (assuming a current ratio of 0.75) to:

a. Decrease

b. Increase

c. No Change

d. Not enough information is provided to answer this question.