Lockdown Manufacturing Company decides to examine its working capital policy. In addition to its current strategy of maintaining current assets at 50 percent of sales, Lockdown is considering two other strategies based on current assets at 30 or 70 percent of next year’s sales. Projected net sales and fixed assets for next year are Php 1,000,000 and Php 600,000, respectively. Lockdown plans to maintain its existing capital structure of 50 percent debt and 50 percent equity. Current liabilities are to be 40 percent of projected total liabilities. Required: c. Calculate Lockdown’s net working capital and current ratio d. Explain what effect these strategies would have on Lockdown’s liquidity.
Lockdown Manufacturing Company decides to examine its working capital policy. In addition to its current strategy of maintaining current assets at 50 percent of sales, Lockdown is considering two other strategies based on current assets at 30 or 70 percent of next year’s sales. Projected net sales and fixed assets for next year are Php 1,000,000 and Php 600,000, respectively. Lockdown plans to maintain its existing capital structure of 50 percent debt and 50 percent equity. Current liabilities are to be 40 percent of projected total liabilities. Required: c. Calculate Lockdown’s net working capital and current ratio d. Explain what effect these strategies would have on Lockdown’s liquidity.
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 9P
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Lockdown Manufacturing Company decides to examine its working capital policy. In addition to its current strategy of maintaining current assets at 50 percent of sales, Lockdown is considering two other strategies based on current assets at 30 or 70 percent of next year’s sales. Projected net sales and fixed assets for next year are Php 1,000,000 and Php 600,000, respectively. Lockdown plans to maintain its existing capital structure of 50 percent debt and 50 percent equity. Current liabilities are to be 40 percent of projected total liabilities.
Required:
c. Calculate Lockdown’s net working capital and current ratio
d. Explain what effect these strategies would have on Lockdown’s liquidity.
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