Question

21.

Evian Science Inc. ($ thousands)
Income Statement for the year ending Dec. 31, 2017
Net Sales			25,000
Cost of Goods Sold			15,320
Depreciation			4,700
Earnings before interest and taxes			4,980
Interest Expenses			950
Earnings before tax			4,030
Tax			1,370
Earnings after tax			2,660
Dividends			900
Balance Sheet as of Dec. 31, 2017
Cash	550	Accounts Payable	2,775
Accounts receivable	1,360	Long-term debt	4,750
Inventory	3,410	Common stock	7,500
Total current assets	5,320	Retained earnings	2,250
Net fixed assets	11,955
Total assets	17,275	Total liab. & equity	17,275

Please refer to Evian Science's financial statements above. What was Evian Science's current ratio at the end of 2017?

       1.92
       2.13
       1.80
       1.15

Question 22. 22. Please refer to the financial data for Evian Science (in Question 21). Assume a 365-day year for your calculations. Evian Science's collection period in days, based on sales, at the end of 2017 is:

       22.37
       21.64
       30.78
       19.86

Question 23. 23. Please refer to Evian Science's financial statements (in Question 21). Assume a constant profit margin and dividend payout ratio, and further assume all of Evian Science's assets and current liabilities vary directly with sales. Assume long-term debt and common stock remain unchanged. Sales are projected to increase by 25 percent. What is Evian Science's external financing need for next year?

       -$817
       $1,425
       $1,300
       $982
       $668

Answer 1

Q21. Solution: (values in Thousands of dollars)

Current Ratio is calculated to check the short-term liquidity position of the company.

Current Assets = $5,320

Current Liabilities = Accounts payable = $2,775

Current Ratio = $5,320 / $2,775

Current Ratio = 1.917 or 1.92

So, the correct option is (a) 1.92

Q22. Solution: (values in thousands of dollars, except number of days)

Average collection period (ACP) is number of days it takes to collect money from customers after sale.

Average collection period = 0.0544 x 365

Average collection period = 19.856 or 19.86 days

So, the correct option is (d) 19.86 days.