Question

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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  • CreatedSeptember 11, 2015
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