HW 2 Fundamentals of corporate finance

Score: 120

1.

out of 120 points (100%)

award:

10 out of
10.00
points
Just Dew It Corporation reports the following balance sheet information for 2011 and 2012.
JUST DEW IT CORPORATION
2011 and 2012 Balance Sheets
Assets
2011
Current assets
Cash
Accounts receivable
Inventory
Total

Liabilities and Owners’ Equity
2011

2012

$ 11,000
27,000
75,000

$ 14,250
36,750
96,250

$ 113,000

$147,250

Current liabilities
Accounts payable
Notes payable

2012

$ 54,000
14,800

$ 63,750
20,500

$ 68,800

$ 84,250

Long-term debt
Owners’ equity
Common stock and paid-in surplus
Retained earnings

$ 50,000

$ 40,000

$ 55,000
226,200

$ 55,000
320,750

Total

Net plant and equipment

$287,000

$352,750

Total

$281,200

$375,750

Total assets

$400,000

$500,000

Total liabilities and owners’ equity

$400,000

$500,000

Based on the balance sheets given for Just Dew It:
a. Calculate the current ratio for each year. (Round your answers to 2 decimal places. (e.g., 32.16))
Current ratio

2011
1.64
times

2012
1.75
times

b. Calculate the quick ratio for each year. (Round your answers to 2 decimal places. (e.g., 32.16))
Quick ratio

2011
0.55
times

2012
0.61
times

c. Calculate the cash ratio for each year. (Round your answers to 2 decimal places. (e.g., 32.16))
Cash ratio

2011
0.16
times

2012
0.17
times

d. Calculate the NWC to total assets ratio for each year. (Round your answers to 2 decimal places.
(e.g., 32.16))
NWC ratio

2011
11.00
%

2012
12.60
%

e. Calculate the debt–equity ratio and equity multiplier for each year. (Round your answers to 2 decimal places. (e.g., 32.16))
Debt-equity ratio
Equity multiplier

2011
0.42
1.42

times

2012
0.33
1.33

times

f. Calculate the total debt ratio and long-term debt ratio for each year. (Round your answers to 2 decimal places. (e.g., 32.16))
Total debt ratio
Long-term debt ratio

2011
0.30
times
0.15
times

2012
0.25
times
0.10
times

Learning Objective: 03-02 How to compute and, more importantly, interpret some common
ratios.