The Southwick Company has the following balance sheet ($000): Financial Ratios Current ratio ........ 1.92 Quick ratio ....... 1.08 Debt-to-equity ratio ...... 0.79 Evaluate the

Question

33 users unlocked this solution today!

The Southwick Company has the following balance sheet ($000):

Financial Ratios
Current ratio ........ 1.92
Quick ratio ....... 1.08
Debt-to-equity ratio ...... 0.79
Evaluate the impact of each of the following (independent) financial decisions on Southwick€™s current, quick, and debt-to-equity ratios:
a. The firm reduces its inventories by $500,000 through more efficient inventory management procedures and invests the proceeds in marketable securities.
b. The firm decides to purchase 20 new delivery trucks for a total of $500,000 and pays for them by selling marketable securities.
c. The firm borrows $500,000 from its bank through a short-term loan (seasonal financing) and invests the proceeds in inventory.
d. Southwick borrows $2,000,000 from its bank through a 5-year loan (interest due annually, principal due at maturity) and uses the proceeds to expand its plant.
e. The firm sells $2,000,000 (net) in common stock and uses the proceeds to expand itsplant.

Assets Cash Marketable securitles Accounts recervable Inventory Total current assets Plant and equipment (net) 5.000Common stock ($I par) Total assets Liablities & Stockholders' Equit $ 1,750 1250 3,000 1750 s 4.750 1000 Contributed capttal In excess of par 2.000 3,000 $ 6.000 Total lablities and stockholders' equity S10.750 $500 Accounts payable 750 Notes payable 2,000 Total current liablities 2500 Long-term debt $5,750 Total Bablities $10750 Retained earnings Total stockholders' equity