EBK FUNDAMENTALS OF CORPORATE FINANCE A
10th Edition
ISBN: 9780100342613
Author: Ross
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 3, Problem 1CRCT
Current Ratio [LO2] What effect would the following actions have on a firm’s current ratio? Assume that net working capital is positive.
a. Inventory is purchased.
b. A supplier is paid.
c. A short-term bank loan is repaid.
d. A long-term debt is paid off early.
e. A customer pays off a credit account.
f. Inventory is sold at cost.
g. Inventory is sold for a profit.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Current Ratio. What effect would the following actions have on a firm's current ratio? Assume that
net working capital is positive.
a. Inventory is purchased.
b. A supplier is paid.
c. A short-term bank loan is repaid.
d. A long-term debt is paid off early.
e. A customer pays off a credit account.
f. Inventory is sold at cost.
g. Inventory is sold for a profit. LO 3.2
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
Why is the quick ratio frequently a betterindicator than the current ratio of a firm’s ability to pay its bills?
Chapter 3 Solutions
EBK FUNDAMENTALS OF CORPORATE FINANCE A
Ch. 3.1 - Prob. 3.1ACQCh. 3.1 - Prob. 3.1BCQCh. 3.2 - Prob. 3.2ACQCh. 3.2 - Name two types of standardized statements and...Ch. 3.3 - What are the five groups of ratios? Give two or...Ch. 3.3 - Given the total debt ratio, what other two ratios...Ch. 3.3 - Turnover ratios all have one of two figures as the...Ch. 3.3 - Profitability ratios all have the same figure in...Ch. 3.4 - Return on assets, or ROA, can be expressed as the...Ch. 3.4 - Return on equity, or ROE, can be expressed as the...
Ch. 3.5 - Prob. 3.5ACQCh. 3.5 - Prob. 3.5BCQCh. 3.5 - Prob. 3.5CCQCh. 3.5 - Prob. 3.5DCQCh. 3 - Prob. 3.1CTFCh. 3 - Prob. 3.2CTFCh. 3 - What is the correct formula for computing the...Ch. 3 - Prob. 3.4CTFCh. 3 - Current Ratio [LO2] What effect would the...Ch. 3 - Current Ratio and Quick Ratio [LO2] In recent...Ch. 3 - Prob. 3CRCTCh. 3 - Prob. 4CRCTCh. 3 - Prob. 5CRCTCh. 3 - Prob. 6CRCTCh. 3 - Prob. 7CRCTCh. 3 - Prob. 8CRCTCh. 3 - Prob. 9CRCTCh. 3 - Industry-Specific Ratios [LO2] There are many ways...Ch. 3 - Prob. 11CRCTCh. 3 - Prob. 12CRCTCh. 3 - Prob. 1QPCh. 3 - Prob. 2QPCh. 3 - Prob. 3QPCh. 3 - Prob. 4QPCh. 3 - Prob. 5QPCh. 3 - Prob. 6QPCh. 3 - Prob. 7QPCh. 3 - Prob. 8QPCh. 3 - Prob. 9QPCh. 3 - Prob. 10QPCh. 3 - Prob. 11QPCh. 3 - Prob. 12QPCh. 3 - Prob. 13QPCh. 3 - Prob. 14QPCh. 3 - Prob. 15QPCh. 3 - Prob. 16QPCh. 3 - Prob. 17QPCh. 3 - Prob. 18QPCh. 3 - Prob. 19QPCh. 3 - Prob. 20QPCh. 3 - Prob. 21QPCh. 3 - Prob. 22QPCh. 3 - Prob. 23QPCh. 3 - Prob. 24QPCh. 3 - Prob. 25QPCh. 3 - Prob. 26QPCh. 3 - Prob. 27QPCh. 3 - Prob. 28QPCh. 3 - Prob. 29QPCh. 3 - Prob. 30QPCh. 3 - Prob. 1MCh. 3 - Prob. 2MCh. 3 - Prob. 3M
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- If a firm decreases its operating costs, all else constant, then the: A. profit margin will decrease.B. return on assets will decrease.C. total asset turnover rate will increase.D. cash coverage ratio will decrease.E. price-earnings ratio will decrease Can you give me detailed explanation?arrow_forwardWhich one of the following is a measure of long term solvency? A. Price earning ratio B. Profit margin C. Cash coverage ratio D. Receivables turnover E. Quick ratioarrow_forwardCurrent Ratio: Would the following events increase or decrease a firms ratio? a. Inventory sold? b. A firm takes out a bank loan to pay its suuppliers? c. The firm arranges a line of credit that allows it to borrow at any time to pay its suppliers?arrow_forward
- 7. The internal rate of return (IRR) can best be described as: A. the discount rate at which a set of cash flows have a zero net present value B. the discount rate at which a set of cash flows have a positive net present value c. the rate which the business has to pay to raise finance for an investment the return required by the managers of the business D.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_forwardFE1 Show your work for problem solving questions. If you use one or more sources of information in preparing any answer, provide an APA-style reference, identify any quoted information, and cite a reference wherever it is used. How would each of the following events change the equilibrium financial market value of a company? (a)an increase in its cost of production; (b) an increase in its cost of financing; (c) an increase in the market’s discount rate; (d) an increase in its sales revenue; and (e) an increase in its projected future profits.arrow_forward
- Questions: Does a low return on sales indicate a weak company? (Y/N). Explain your answer. Do greater Net sales always result in greater net income? (Y/N) Why? Examine the financial information above and comment on the item that you find interesting.arrow_forwardWhich one of the following statements is correct? A. If a firm decreases its inventory period, its accounts receivable period will also decrease. B. The longer the cash cycle, the more cash a firm typically has available to invest. C. A firm would prefer a negative cash cycle over a positive cash cycle. D. Decreasing the inventory period will also decrease the payables period. E. Both the operating cycle and the cash cycle must be positive values.arrow_forwardSuppose a firm wants to maintain a specific TIE ratio. It knows the amount of its debt, the interest rate on that debt, the applicable tax rate, and its operating costs. With this information, the firm can calculate the amount of sales required to achieve its target TIE ratio. a. True b. Falsearrow_forward
- Holding assets constant, if debt increases, A. The firms ROA declines B. The firms net income would increase C. The firms leverage ratio increases D. The firms ROE declinesarrow_forwardWhich of the following statements is most correct? Select one: A. A company with a current ratio of 0.5, should purchase additional inventory on credit if it wants to improve this ratio. B. Return on assets is a function of two variables, the profit margin and current asset turnover. C. A company with a current ratio of 0. 5, should sell some of the existing inventory at cost if it wants to improve this ratio. D. Firms with low rates of return on stockholders’ equity tend to sell at relatively high ratios of market price to book value.arrow_forwardAnswer true or false. 1. According to the economic order quantity model, the total period cost would depend, among other things, on the size of each order.☐True☐False2. According to the economic order quantity model, there is no lead time for delivery of goods.☐True☐False3. Working capital is the capital of the company.☐True☐False4. Acquiring a fixed asset exclusively with long-term debt reduces net working capital.☐True☐False5. It is in the firm's interest to have a high cash balance at all times.☐True☐Falsearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
FIN 300 Lab 1 (Ryerson)- The most Important decision a Financial Manager makes (Managerial Finance); Author: AllThingsMathematics;https://www.youtube.com/watch?v=MGPGMWofQp8;License: Standard YouTube License, CC-BY
Working Capital Management Policy; Author: DevTech Finance;https://www.youtube.com/watch?v=yj-XbIabmFE;License: Standard Youtube Licence