ZZZ company has $27 million of current assets and $29 million of
noncurrent assets. It forecasts an EBIT of $5.2 million and pays
income taxes at a 35% rate. Short-term bank notes carry a 4%
interest rate, and the company can issue long-term bonds at 7%. The
company has set a target debt ratio of 45%.
Required:
A. For a maturity mix of 60% current and 40%
long-term debt, prepare the company's abbreviated balance
sheet.
B. For a maturity mix of 60% current and 40%
long-term debt, prepare the company's financial half of its income
statement.
C. Based on the financial statements above,
calculate the return on equity ratio in order to evaluate the
company's risk and return.
D. Based on the financial statements above,
calculate the current ratio in order to evaluate the company's risk
and return.