At the End of Last Year, a fiRm Had a Current

question 227

Multiple Choice

At the end of last year, a firm had a current ratio of 1.4, net fixed assets of $2,500, notes payable of $0, and total assets of $5,100. Based on pro forma sales, current liabilities will increase by $500
And current assets will increase by $900. By how much can notes payable increase on the pro
Forma statement without changing the current ratio?

• A) $0
• B) $143
• C) $400
• D) $667
• E) $760

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Definitions:

Present Values

The current valuation of a future financial gain or series of payments, after applying a specific return rate.

Net Present Value Method

A valuation method that calculates an investment's worth by determining the present value of its expected future cash flows, subtracting the initial investment cost.

Capital Investment Analysis

The process of evaluating investments in physical assets to determine their potential for profit.

Sensitivity Analysis

Sensitivity Analysis is a financial modeling tool used to determine how different values of an independent variable affect a particular dependent variable under a given set of assumptions.