Gemini Beverage has the following historical balance sheet: Cash: $20 Account Re

Question

Gemini Beverage has the following historical balance sheet:

Cash:                    $20

Account Rec        $240

Inventory               $320

ToT curr assets  $580

Net Plant and equipment:  $420

Total assets: $1,000

Accounts payable:   $200

Notes payable:         $130

Accruals:                    $30

Current liabs             $360

Long term bonds     $260

Common Stock        $270

Retained Earnings $110

Total liab and equity:   1,000

Over the next year Gemini's currents assets, accounts payable, and accruals will grow in proportion to sales. Last year's sales were $800 and this year's sales are expected to increase by 40%. The firm will retain $58 in earnings to fund current asset growth, and the rest of the increase will be funded entirely with notes payable. the net plant and equipment account will increase to $500 and will be funded directly by a new equity issue. What will Gemini's new current ratio be after the changes in the firm's financial picture are complete?

1. please explain(display) and show the steps to your solution in an excel spreadsheet.

Explanation / Answer

Hi,

Please find the answer as follows:

Change in the value of Current Assets:

Change in the value of Current Liabilties:

New Current Ratio = New Current Assets/New Curren Liabilities = 812/534 = 1.52

Thanks.

Current (A) Forecast % (B) Increase Expected (C)=A*B Total Value Next Year (A + C) Cash 20 40% 8 28 Accounts Receivable 240 40% 96 336 Inventory 320 40% 128 448 Total Current Assets 580
232 812

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