Using Financial Accounting Information
10th Edition
ISBN: 9781337276337
Author: Porter, Gary A.
Publisher: Cengage Learning,
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Chapter 2, Problem 2.5.2AAP
To determine
Concept Introduction:
To indicate: The reason for the firm might havetrouble in paying bills.
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When the company is working at full capacity, the assets in the AFN equation is the total assets
True
False
Considering each action independently and holding other things constant, which of the following actions would reduce a firm’s need for additional capital?
a. An increase in the dividend payout ratio.
b. A decrease in the days sales outstanding.
c. An increase in expected sales growth.
d. A decrease in the profit margin.
Which one of the following will decrease the net working capital of a firm? Assume the current ratio is greater than 1.0. A. selling inventory at cost
B. collecting payment from a customer
C. paying a payment on a long-term debt
D. selling a fixed asset for book value
E. paying a supplier for the purchase of an inventory item
“Efficient working Capital management leads to improve the operating performance of the business concern and it helps to meet the short-term liquidity”
Do you agree with the above statement? Explain.
What are the types of working capital policies? Explain and compare of working capital financing policies in criteria of (1) Approach (2) Risk level (3) Profitability (4) Interest costs, and (5) Liquidity management.
Chapter 2 Solutions
Using Financial Accounting Information
Ch. 2 - Prob. 2.1ECh. 2 - Prob. 2.2.1ECh. 2 - Prob. 2.2.2ECh. 2 - Classification of Financial Statement Items Regal...Ch. 2 - Prob. 2.4.1ECh. 2 - Prob. 2.4.2ECh. 2 - Prob. 2.4.3ECh. 2 - Prob. 2.5ECh. 2 - Prob. 2.6ECh. 2 - Prob. 2.7E
Ch. 2 - Prob. 2.8ECh. 2 - Statement of Retained Earnings Landon Corporation...Ch. 2 - Prob. 2.10ECh. 2 - Prob. 2.11ECh. 2 - Prob. 2.12MCECh. 2 - Prob. 2.13MCECh. 2 - Prob. 2.14MCECh. 2 - Prob. 2.1.1PCh. 2 - Prob. 2.1.2PCh. 2 - Prob. 2.2PCh. 2 - Prob. 2.3.1PCh. 2 - Prob. 2.3.2PCh. 2 - Prob. 2.3.3PCh. 2 - Prob. 2.4.1PCh. 2 - Prob. 2.4.2PCh. 2 - Prob. 2.5.1PCh. 2 - Prob. 2.5.2PCh. 2 - Prob. 2.5.3PCh. 2 - Prob. 2.6.1PCh. 2 - Prob. 2.6.2PCh. 2 - Prob. 2.7.1PCh. 2 - Prob. 2.7.2PCh. 2 - Prob. 2.7.3PCh. 2 - Multiple-Step Income Statement and Profit Margin...Ch. 2 - Prob. 2.8PCh. 2 - Prob. 2.9PCh. 2 - Prob. 2.10MCPCh. 2 - Prob. 2.11MCPCh. 2 - Prob. 2.12MCPCh. 2 - Prob. 2.1.1AAPCh. 2 - Prob. 2.1.2AAPCh. 2 - Prob. 2.2AAPCh. 2 - Prob. 2.3.1AAPCh. 2 - Prob. 2.3.2AAPCh. 2 - Prob. 2.3.3AAPCh. 2 - Prob. 2.4.1AAPCh. 2 - Prob. 2.4.2AAPCh. 2 - Prob. 2.5.1AAPCh. 2 - Prob. 2.5.2AAPCh. 2 - Prob. 2.5.3AAPCh. 2 - Prob. 2.6.1AAPCh. 2 - Prob. 2.6.2AAPCh. 2 - Prob. 2.7.1AAPCh. 2 - Prob. 2.7.2AAPCh. 2 - Prob. 2.7.3AAPCh. 2 - Multiple-Step Income Statement and Profit Margin...Ch. 2 - Prob. 2.8.1AAPCh. 2 - Prob. 2.8.2AAPCh. 2 - Prob. 2.9AAPCh. 2 - Prob. 2.10AAMCPCh. 2 - Prob. 2.11.1AAMCPCh. 2 - Prob. 2.11.2AAMCPCh. 2 - Prob. 2.12AAMCP
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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.Similar questions
- Using the following Balance Sheet summary information, calculate for the two companies presented: A. working capital B. current ratio Then: A. evaluate which companys liquidity position appears stronger, and why.arrow_forwardThe cost of equity is _______. A. the interest associated with debt B. the rate of return required by investors to incentivize them to invest in a company C. the weighted average cost of capital D. equal to the amount of asset turnoverarrow_forwardThe income statement comparison for Rush Delivery Company shows the income statement for the current and prior year. A. Determine the operating income (loss) (dollars) for each year. B. Determine the operating income (percentage) for each year. C. The company made a strategic decision to invest in additional assets in the current year. These amounts are provided. Using the total assets amounts as the investment base, calculate the ROI. Was the decision to invest additional assets in the company successful? Explain. D. Assuming an 8% cost of capital, calculate the RI for each year. Explain how this compares to your findings in part C.arrow_forward
- CALCULATING 3Ms COST OF CAPITAL In this chapter, we described how to estimate a companys WACC, which is the weighted average of its costs of debt, preferred stock, and common equity. Most of the data we need to do this can be found from various data sources on the Internet. Here we walk through the steps used to calculate Minnesota Mining Manufacturings (MMM) WACC. 3. Next, we need to calculate MMMs cost of debt. We can use different approaches to estimate it. One approach is to take the companys interest expense and divide it by total debt (which is the sum of short-term debt and long-term debt). This approach only works if the historical cost of debt equals the yield to maturity in todays market (i.e., if MMMs outstanding bonds are trading at close to par). This approach may produce misleading estimates in years in which MMM issues a significant amount of new debt. For example, if a company issues a great deal of debt at the end of the year, the full amount of debt will appear on the year-end balance sheet, yet we still may not see a sharp increase in annual interest expense because the debt was outstanding for only a small portion of the entire year. When this situation occurs, the estimated cost of debt will likely understate the true cost of debt. Another approach is to try to find this number in the notes to the companys annual report by accessing the companys home page and its Investor Relations section. Alternatively, you can go to other external sources, such as bondsonline.com, for corporate bond spreads, which can be used to find estimates of the cost of debt. Remember that you need the after-tax cost of debt to calculate a firms WACC, so you will need MMMs tax rate (which has averaged around 30% in recent years). What is your estimate of MMMs after-tax cost of debt?arrow_forwardCalculate Computron’s return on invested capital (ROIC). Computron has a 10% cost of capital (WACC). What caused the decline in the ROIC? Was it due to operating profitability or capital utilization? Do you think Computron’s growth added value?arrow_forwardAnswer the following: A. What is the company’s return on asset?B. What is the company’s net profit margin?C. What is the company’s days receivable?D. What is the company’s quick ratio?arrow_forward
- Net working capital is defined as (select one): A. current assets minus current liabilities. B. a ratio measure of liquidity best used in cross-sectional analysis. C. current liabilities minus current assets. D. the portion of the firm's assets financed with short-term funds.arrow_forwardBy modifying the break-even equation, a company is able to determine the sales required to earn a ________________ profit. a.banker's b.working capital c.target d. contributionarrow_forwardLeverage relates to how much of someone else’s money a business or individual is using to finance its operations. Discuss leverage and the various debt ratios used by an organization. Discuss the benefits and perils of too much leverage. Choose a debt ratio and discuss the importance of monitoring that ratio. For example, the time's interest earned ratio is an important ratio to monitor because it shows if a firm can pay the interest payments on its debt each month. The benefits of leverage allow a firm to use borrowed funds to generate income. Too much leverage can make it difficult for a company to make those payments each month.arrow_forward
- Considering each action independently and holding other things constant, which of the following actions would reduce a firm’s need for additional capital? a. An increase in the dividend payout ratio. b. A decrease in the days sales outstanding. c. An increase in expected sales growth. d. A decrease in the profit margin. When the company is working at full capacity, the assets in the AFN equation is the fixed assets only True Falsearrow_forwardCheck all that apply. Increase the cost and amount of assets necessary to generate each dollar of sales because it will increase the company’s total assets turnover. Decrease the amount of debt financing used by the company, which will decrease the total assets turnover ratio. Increase the interest rate on its notes payable or long-term debt obligations because it will reduce the company’s net profit margin. Use more debt financing in its capital structure and increase the equity multiplier.arrow_forwardWhich of the following does NOT always increase a company’s MVA? Group of answer choices: Increasing the expected growth rate of sales Decreasing the capital requirements (Capital/Sales) Decreasing the weighted average cost of capital Increasing the expected operating profitability (NOPAT/Sales) Increasing the expected rate of return on invested capitalarrow_forward
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Working capital explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=XvHAlui-Bno;License: Standard Youtube License