Question 2

Appleby Inc., a manufacturer has total asset of $1 million. At the beginning of a new financial year, it proposes to change existing composition by selling long term investment, retains higher cash and settle some current liabilities. The table below presents the comparison (in percentage of various items relative to total asset):

	Existing %	Proposed %
Current assets	40	55
Non-current assets	60	45
Total asset	100	100

	Existing %	Proposed %
Current liabilities	35	30
Non-current liabilities and equity	65	70
Total liability and equity	100	100

Required:

Discuss the effect of proposal to profitability, liquidity and risk. Justify if Appleby should continue with the proposal. (Word limit: 200 words) (5 marks)