(a) The firm earns 5% on current assets and 15% on fixed assets. The firm's current liabilities cost 7% to maintain and the average annual cost of long-term funds is 20 %. Flum Packages, Inc. Current assets RM10,000 Current Liabilities RM5,000 Fixed assets RM20,000 Long-term debt RM12,000 Equity RM13,000 Total RM30,000 Total RM30,000 (i) Calculate the firm's initial net working capital. (ii) Calculate the firm's initial ratio of current assets to total assets.
(a) The firm earns 5% on current assets and 15% on fixed assets. The firm's current liabilities cost 7% to maintain and the average annual cost of long-term funds is 20 %. Flum Packages, Inc. Current assets RM10,000 Current Liabilities RM5,000 Fixed assets RM20,000 Long-term debt RM12,000 Equity RM13,000 Total RM30,000 Total RM30,000 (i) Calculate the firm's initial net working capital. (ii) Calculate the firm's initial ratio of current assets to total assets.
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 6P
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(a) The firm earns 5% on current assets and 15% on fixed assets. The firm's current liabilities cost 7% to maintain and the average annual cost of long-term funds is 20 %.
Flum Packages, Inc. |
|||
Current assets |
RM10,000 |
Current Liabilities |
RM5,000 |
Fixed assets |
RM20,000 |
Long-term debt |
RM12,000 |
Equity |
RM13,000 |
||
Total |
RM30,000 |
Total |
RM30,000 |
(i) Calculate the firm's initial net
(ii) Calculate the firm's initial ratio of current assets to total assets.
b. Critically evaluate THREE (3) advantages of commercial paper that usually used by the largest and most credit-worthy companies.
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