Assume you are given the following relationships for the Haslam Corporation: Cal

Question

Assume you are given the following relationships for the Haslam Corporation:

Calculate Haslam's profit margin. Do not round intermediate calculations. Round your answer to two decimal places.
%

Calculate Haslam's liabilities-to-assets ratio. Do not round intermediate calculations. Round your answer to two decimal places.
%

Suppose half of Haslam's liabilities are in the form of debt. Calculate the debt-to-assets ratio. Do not round intermediate calculations. Round your answer to two decimal places.
%

2. Current and Quick Ratios

The Nelson Company has $1,140,000 in current assets and $475,000 in current liabilities. Its initial inventory level is $285,000, and it will raise funds as additional notes payable and use them to increase inventory.

How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.1? Round your answer to the nearest cent.

$  

What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Round your answer to two decimal places.

Explanation / Answer

1) Sales/Total Assets = 1.4 i.e. Sales = 1.4 Assets ROA = 4% ROE = 7% Let Assets be 100   ROA= 4% i.e Return =4%of 100 i.e. 4 Sales = 1.4*100 =140 Profit Margin = 4/140*100 = 2.86% ROE = 7% Equity = 4/7% = 57.14 Liabilities= Assets-Equity = 100-57.14 = 42.86 Liabilities/Assets = 42.86/100 = .4286 Debt =1/2*Liab = 42.86/2 = 21.43 Debt to Assets = Debt/Assets = 21.43/100 = .2143 2) Current Assets            1,140,000.00 Current Liab                475,000.00 CR =CA/CL = 2:1 Let Investment through notes payable be x 2 = 1140,000+x / 475000 + x 950000 + 2x = 1140,000+x 190,000 = x Maximum Investment can be $190,000 in notes payabl to finance inventory New CL = 475000+190,000 = 665,000 New Inventory = 285000 + 190,000 = 475,000 New CA = 1140,000+190,000 = 1,330,000 Quick Assets = 1,330,000 - 475,000 = 855,000 Quick ratio = Quick Assets/CL = 855,000/665,000 = 1.29 Note: I think you mean to say 2:1 instead of 2.1.So solved on that basis. Otherwise if it is 2.1 then put it as 2.1 in the above formulas

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