The Following Information Is Available for Trico and Its Two

question 88

Essay

The following information is available for Trico and its two main competitors in the industry (Duco and Unico):
$\begin{array}{|l|r|r|r|}\hline &\text { Trico } & \text { Duco } & \text { Unico } \\\hline \text { Cash } & \$ 9,800 & \$ 10,500 & \$ 26,500 \\\hline \text { Short-term investments } & 6,400 & 8,200 & 12,500 \\\hline \text { Accounts receivable } & 12,500 & 8,500 & 14,350 \\\hline \text { Merchandise inventory } & 30,150 & 40,000 & 40,150 \\\hline \text { Prepaid expense } & 900 & 6,750 & 2,450 \\\hline \text { Accounts payable } & 19,400 & 13,750 & 26,800 \\\hline \text { Salaries payable } & 1,200 & 3,500 & 6,250 \\\hline \text { Other current payables } & 600 & 1,200 & 2,150\\\hline\end{array}$
The industry standard for the current ratio is 1.8 and the industry standard for the acid-test ratio is 1.
Required:
1.Calculate the current ratio and acid-test ratio for each firm.
2.Rank the firms in decreasing order of liquidity.
3.Comment on Trico's relative liquidity position.

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Definitions:

Intrinsic Value

The actual value of a company or an asset based on underlying perception of its true value including all aspects of the business.

November 45 Call

A call option that gives the holder the right to buy a particular stock at a price of $45 per share, expiring in November.

Pure Discount Bond

A type of bond that is issued at a discount to its nominal value and pays no interest, but is redeemed at its face value at maturity.

Risk-Free Rate

The theoretical return on an investment with no risk of financial loss, typically associated with government bonds.