In this quiz,\'nominal\' means \'not adjusted for inflation\'. 6. You work for a

Question

In this quiz,'nominal' means 'not adjusted for inflation'. 6. You work for a payday lender. Your firm's offices were recently hit by a tornado, and you lost much of your recent financial accounting data. All that remain are a fragment of the balance sheet, and miscellaneous items from the income statement, shown below. Income Statement Items: Taxes $1,750 Earnings before interest and taxes (EBIT) $10,000 t and taxes (EBIT $10.000 Interest income: Interest expenses: Gross Margin: Non-Recurring Events: Cost of Revenue $5,000 $3,000 $50,000 s0 $2,500 $0 Balance Sheet Fragment: Long-Term Assets 375,000 400,000 Liabilities Current Liabilities Long-Term Liabilities 175,000 225,000 Owners' Equity 125,000 a. Calculate the current ratio. Is the firm likely to be able to meet its current obligations? The current ratio is (5 marks) Is the firm likely to meet its current obligations (yes/no)? (1 mark) b. Calculate the firm's Return on Assets. The firm's Return on Assets is (5 marks)

Explanation / Answer

current assets= 150,000 ( it is calculatedy with total assets- long term assets)

current liabilities= 175,000

current ratio= current assets/ current liabilities

= 150,000/175,000= 0.857:1

the optimum level of current ratio is 2:1, hence the firm is not having sufficient current assets reserves;

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