The Jamesway Printing Corporation has current assets of 3.0million.Of this total, 1.0 Million is Inventory, 0.5 million iscash, 1.0 million is accounts receivable, and the balance is marketable securities. Jamesway has 1.5 million in current liabilities.
a) What are the current and quick ratios for Jamesway?
b) If jamesway takes 0.25 million in cash and pays off 0.25million of current liabilities, what happens to its current and quick ratios? What happens to its real liquidity?
c) IF Jamesway sells 0.5 million of its accounts receivable to a factor (a type of specialized financial institution that buys accounts receivable: and uses the proceeds to pay off short term debt obligations, what happens to its current and quick ratio?
d) IF Jamesway sells 1.0 million in new stock and place the proceeds in marketable securities, what happens to its current and quick ratios?
e) What do these examples illustrate about the current and quick ratios?