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torisob [31]
3 years ago
10

North Bank is analyzing Belle Corp.'s financial statements for a possible extension of credit. Belle's quick ratio is significan

tly better than the industry average. Which one of the following factors should North consider as a possible limitation of using this ratio when evaluating Belle's creditworthiness?
A. Fluctuating market prices of short-term investments may adversely affect the ratio.
B. Increasing market prices for Belle's inventory may adversely affect the ratio.
C. Belle may need to sell its available-for-sale investments to meet its current obligations.
D. Belle may need to liquidate its inventory to meet its long-term obligations.
Business
1 answer:
Arlecino [84]3 years ago
4 0

Answer:

A) Fluctuating market prices of short-term investments may adversely affect the ratio.

Explanation:

The quick ratio (or acid test) measures a company's ability to pay short term liabilities using its liquid assets. usually the best quick ratio is 1, because it means that your liquid current assets cover completely your current liabilities.

There are two formulas to calculate the quick ratio:

  • quick ratio = (cash + marketable securities + accounts receivables) / current liabilities
  • quick ratio = (current assets - inventory - prepaid expenses) / current liabilities

The quick ratio includes the value of short term investments, and any fluctuation in their price may affect the ratio.

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Economic studies have generally found that professional sports players have salaries that
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should be equal to their marginal revenue product.

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Consider a firm with an EBIT of $500,000. The firm finances its assets with $2,000,000 debt (costing 6 percent) and 50,000 share
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Answer:

EPS is reduced by $1.92 and 42%

Explanation:

EBIT                      $500,000

Interest Expense ($120,000)     ($2,000,000 x 6%)

EBT                       $380,000

Tax 40%               <u>($152,000)</u>

Net Earninig         <u>$228,000</u>

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Change in Capital Structure.

EBIT                      $500,000

Interest Expense ($60,000)     ($1,000,000 x 6%)

EBT                       $440,000

Tax 40%               <u>($176,000)</u>

Net Earninig         <u>$264,000</u>

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