The Southwick Company has the following balance sheet ($000):
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Assets
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Liabilities and Stockholders' Equity
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|
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Cash
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$ 500
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Accounts payable
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$ 1,750
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Marketable securities
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750
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Notes payable
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1,250
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|
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Accounts receivable
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2,000
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Total current liabilities
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$ 3,000
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Inventory
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2,500
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Long-term debt
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1,750
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Total current assets
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$ 5,750
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Total liabilities
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$ 4,750
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Plant and equipment (net)
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5,000
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Common stock ($1 par)
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1,000
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Total assets
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$10,750
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Contributed capital in excess of par
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2,000
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Retained earnings
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3,000
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|
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Total stockholders' equity
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$ 6,000
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|
|
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Total liabilities and stockholders' equity
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$10,750
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Financial Ratios
Evaluate the impact of each of the following (independent) financial decisions on Southwick's current, quick, and debt-to-equity ratios:
a. The firm reduces its inventories by $500,000 through more efficient inventory management procedures and invests the proceeds in marketable securities.
b. The firm decides to purchase 20 new delivery trucks for a total of $500,000 and pays for them by selling marketable securities.
c. The firm borrows $500,000 from its bank through a short-term loan (seasonal financing) and invests the proceeds in inventory.
d. Southwick borrows $2 million from its bank through a 5-year loan (interest due annually, principal due at maturity) and uses the proceeds to expand its plant.
e. The firm sells $2 million (net) in common stock and uses the proceeds to expand its plant.