The Carton Packing Company (CPC) is located in rapidly growing Austin, Texas. To meet its need for funds to finance its growing assets the firm has reinvested earnings and borrowed using short- term bank notes. Balance sheets for the last 5 years are found below:

a. Compute CPC€™s current ratio (current assets divided by current liabilities) and the firm€™s debt ratio (current plus long- term liabilities divided by total assets) for the 5- year period found above. Describe the firm€™s risk using both the current ratio and debt ratio.
b. Alter the financial statements above such that current liabilities remain constant at $ 50 and long- term liabilities increase in the amount needed to meet the firm€™s financing requirements. Compute CPC€™s current ratio (current assets divided by current liabilities) and the firm€™s debt ratio (current plus long- term liabilities divided by total assets) using the revised financial statements you have prepared for the 5- year period 2010€“ 2014. Describe the firm€™s risk using both the current ratio and debt ratio.
c. Which of the financing plans is more risky? Why?

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Carton Packing Company Balance Sheets 2010 2011 $130 270 $400 5 90 100 2012 2013 $190 310 $500 $170 100 230 500 2014 $220 330 $550 $210 100 240 $100 Current assets Fixed assets Total Current liabilities Long-term liabilities Owners' equity Total $160 $450 $130 100 $ 50 100 200 350 $450