The questions (a) through (g) refer to Five Star Manufacturing Company. Use the following information to solve for (a) and (b). Five Star Manufacturing Company Statement of Financial Position As of December 31, 20X4 P 20,000 Current Liabilities (10%) 30,000 Long-term liabilities (15%) 150,000 Total liabilities 200.000 P 400,000 Stockholders' equity 600.000 Total Liabilities & Ovners' equity P1.000.000 P 200,000 300.000 P 500,000 Cash Marketable securities Accounts receivable Inventory Total current assets P 500.000 Net fixed assets Total assets P1.000.000 During 20X4, the firm's earnings before interest and taxes were 20 percent of P800,000 in sales. The income tax rate is 34 percent. Required: a. Determine the level of working capital, net working capital and current ratio. b. Calculate the return on equity (net income/stockholders'). Use the following information about Five Star Manufacturing Company to solve for (c) and (d). Five Star Manufacturing Company decides to examine its working capital policy. In addition to its current strategy of maintaining current assets at 50 percent of sales, Five Star 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 P1,000,000 and P600,000, respectively. Five Star 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 Five Star's net working capital and current ratio under each of the three strategies. d. Explain what effect these strategies would have on Five Star's liquidity.
The questions (a) through (g) refer to Five Star Manufacturing Company. Use the following information to solve for (a) and (b). Five Star Manufacturing Company Statement of Financial Position As of December 31, 20X4 P 20,000 Current Liabilities (10%) 30,000 Long-term liabilities (15%) 150,000 Total liabilities 200.000 P 400,000 Stockholders' equity 600.000 Total Liabilities & Ovners' equity P1.000.000 P 200,000 300.000 P 500,000 Cash Marketable securities Accounts receivable Inventory Total current assets P 500.000 Net fixed assets Total assets P1.000.000 During 20X4, the firm's earnings before interest and taxes were 20 percent of P800,000 in sales. The income tax rate is 34 percent. Required: a. Determine the level of working capital, net working capital and current ratio. b. Calculate the return on equity (net income/stockholders'). Use the following information about Five Star Manufacturing Company to solve for (c) and (d). Five Star Manufacturing Company decides to examine its working capital policy. In addition to its current strategy of maintaining current assets at 50 percent of sales, Five Star 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 P1,000,000 and P600,000, respectively. Five Star 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 Five Star's net working capital and current ratio under each of the three strategies. d. Explain what effect these strategies would have on Five Star's liquidity.
Chapter2: Financial Statements, Cash Flow, And Taxes
Section: Chapter Questions
Problem 15SP
Related questions
Question
Please answer Problem 5 (a - g)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College