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Homework answers / question archive / 1)Using the information below calculate the Current Ratio, Working Capital, and the Debt/Asset Ratio
1)Using the information below calculate the Current Ratio, Working Capital, and the Debt/Asset Ratio.
assets current $40000 concurrent $700000
liabilities current $20000 concurrent 400000
2)
A Moving to the next question prevents changes to this answer. Question 1 A carpet factory that has an annual fixed cost of 1,000,000 Dhs and a variable cost of 131.5 Dhs, has a price charged formula of p= 700 -0.05D. What is the profit at maximum revenue? Cr=CF + CY Cy=cxD TR =x D p=a - (bx D) TR-p* D= (a - bD) * D=aD-bD Profit (Loss) = TR-TC =-bD2 + (a - c)D - Cr/ D a 2b 9 D* = 2b
1)Calculation of current ratio- current ratio is calculated by dividing current assets with current libalities. It shows the firms ability to pay short term obligations.
In the question given current assests = $40000 and current liabilities = $20000
So, current ratio = 40000/20000
Current ratio = 2
Calculation of working capital - working capital means the short term cash liquidity available with the company after paying it's short term liabilities.
So, working capital = currents assets - current liabilities
In question given current assets = $40000 and current liabilities = $20000
hence, working captial = $40000 - $20000
= $ 20000
Calculation of debt /asset ratio - The ratio shows that what percent of assests are being financed by debt.
The formula to calculate debt/asset ratio = total liabilities / total assets
In question current asset = $40000, non-cuurent asset = $70000, current liabilities = $20000 and non-current liabilities = $40000
So, total assetes = current assets + non-curent assests = $40000+$70000 = $110000
Similarlly, total liabilities = currrent liabilities + non-current liabilities = $20000+$40000 = $60000
Hence, debt/ asset ratio = total liabilities/ total assets
= $60000/$110000
Debt/ Asset ratio = 0.54
2)
From question, TC= 1000000+131.5D ( fixed cost +variable cost)
Demand function, P= 700—0.05D
Total revenue (TR)=P ×D=( 700— 0.05D)×D=700D—0.05D2 Now, TR will be maximum only when,d(TR)/dD =0 or , d(700D—0.05D2)/ dD = 0 or 700—0.1D=0 or, D=700/0.1=7000
So TR is maximum when output D=7000 units
Here, TR = 700×7000—0.05×(700)2 ( put D=7000 in the TR function)
or, TR = 4900000—0.05×490000= 4900000—245000 = 2450000
Now ,at this output TC = 1000000+131.5×7000= 1000000+920500= 1920500
Profit ( at the output D=7000,where TR is maximum) =TR—TC = 2450000— 1920500= 529500 DHS.
