Evaluate the impact of each of the following financial decis

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Reference no: EM131119861

The Southwick Company has the following balance sheet ($000):

252_n.jpg

Financial Ratios

Current ratio ........ 1.92

Quick ratio ....... 1.08

Debt-to-equity ratio ...... 0.79

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 $2,000,000 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 $2,000,000 (net) in common stock and uses the proceeds to expand itsplant.

Reference no: EM131119861

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