One of the major aircraft manufacturers started a new promotional offer in which

Question

One of the major aircraft manufacturers started a new promotional offer in which significant discount (up to 25%) would be offered if the customer agreed to pay in full when they place orders. Aircraft manufacturer start producing the aircraft after receiving the order and normally they will deliver the aircraft to the customer in around 18 months. The CEO of Volitation Airways, Jason, is unsure whether he should take up this promotional offer. He would like to know the impact on its financial statements and major financial ratios (including current ratio and gearing ratio) which will have impact on its credit rating. Background information: Volitation is very healthy and has been consistently profitable in recent years. Additional Information: Debt currently comprises about 40% of assets, while liquid current assets constitute around 30% of assets. Because of its solid financial performance, Volitation has also earned a high credit rating.

Explanation / Answer

Ans. Calculatin of Current Ratio = Current assets /current liabilities

Debt. comprises about 40%

Current comprises about 30% of assets

Current ratio = .30/.40 = .75

Calculation of Gearing Ratio = Total debt of firm/Total equity

debt. comprise 40% of assets that means 60% is equity

Gearing ratio = .40/.60 = .67 times

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.