Question
Smith Brothers has the following balance sheet: Current assets $7,000 A/P & Accruals $1,500 Net property & plants $3,000 Notes Payables $2,000 Common Stock $1,500
Smith Brothers has the following balance sheet:
Current assets $7,000 A/P & Accruals $1,500
Net property & plants $3,000 Notes Payables $2,000
Common Stock $1,500
Ret. Earnings $5,000
Total assets $10,000 Total Liab. + Equity $10,000
Smith Brothers' after-tax profit margin is 10%, and the company pays out 40% of its earnings as dividends. Its sales this year were $10,000; its assets were used to full capacity and the profit margin and payout ratio are expected to remain constant. The company plans to raise capital using short-term (3-months) loans (or Notes Payables) for its additional fund needed. If sales are expected to grow by 30%, what will Aaron Brother's current ratio be after it has raised the necessary capital and financing it with Notes Payables?
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