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adoni [48]
3 years ago
5

If a company's current ratio increases from 1.2 to 1.4 from one year to the next, and its quick ratio decreases from 0.2 to 0.15

over the same time period, this indicates: a. the current liabilities have decreased. b. the inventory management should be further examined. c. the liquidity must have increased. d. the accounts receivable have decreased.
Business
1 answer:
Lubov Fominskaja [6]3 years ago
4 0

Answer: b. the inventory management should be further examined.

Explanation:

The Quick ratio is calculated by deducting inventory from the current assets and then dividing that amount by current liabilities while the Current ratio is simply dividing the current assets by the current liabilities.

If the Current ratio increased, it means that the company has more current assets per current liabilities from last year. The fact that the quick ratio dropped however, points to most of the current asset increase being the inventory which means that the company is carrying a lot of inventory.

Their management of inventory such that they are carrying such amounts therefore needs to be further examined before a decision is made on their liquidity.

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you are a consultant to a firm evaluating an expansion of its current business. The cash flow forecasts (in millions of dollar)
timama [110]

Question

you are a consultant to a firm evaluating an expansion of its current business. The cash flow forecasts (in millions of dollar) for the project as follows:

Year     cashflow

0           -100

1-10            15

0n the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.30. Assuming that the rate of return available on risk-free investments is 5% and that the expected rate of return on the market portfolio is 15% what is the net present value of the project

Answer:

NPV= -$32.58

Explanation:

The net present value of the investment is the cash inflow from the investment discounted at required rate of return. The required rate of return can be determined using the the formula below:

Ke= Rf +β(Rm-Rf)  

Ke =? , Rf- 5%,, Rm-15%, β- 1.30

Ke=5% + 1.30× (15-5)=  18%

The NPV = Present value of cash inflow - initial cost

 =  A×(1-(1+r)^(-10)/r  - initial cost

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NPV = 15× (1-1.18^(-10)/0.18 - 100= -32.58

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