ASSETS EQUITIES P 500,000 1,500,000 Current assets Current liabilities P 200,000 Long-term liabilities P 800,000 Owners' Equity Fixed assets 1,000,000 1,800,000 P 2,000,000 P 2,000,000 The return on current assets and fixed assets are approximately 7% and 16%, respectively. The current liabilities cost 2% annually while the long-term funds on the average cost 8%. To improve the earnings, management plans to shift P 200,000 of its current assets to fixed assets and P 150,000 of long-term funds to current liabilities. What would be the increase in the earnings as a result of the change in asset mix and financing mix?
ASSETS EQUITIES P 500,000 1,500,000 Current assets Current liabilities P 200,000 Long-term liabilities P 800,000 Owners' Equity Fixed assets 1,000,000 1,800,000 P 2,000,000 P 2,000,000 The return on current assets and fixed assets are approximately 7% and 16%, respectively. The current liabilities cost 2% annually while the long-term funds on the average cost 8%. To improve the earnings, management plans to shift P 200,000 of its current assets to fixed assets and P 150,000 of long-term funds to current liabilities. What would be the increase in the earnings as a result of the change in asset mix and financing mix?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
The accountant of Villa Company projected the following condensed
a. 9,000
b. 25,000
c. 27,000
d. 30,000
Transcribed Image Text:ASSETS
EQUITIES
P 500,000 Current liabilities
P 200,000
Current assets
Fixed assets
1,500,000 Long-term liabilities P 800,000
Owners' Equity
1,000,000 1,800,000
P 2,000,000
P 2,000,000
The return on current assets and fixed assets are approximately 7% and 16%,
respectively. The current liabilities cost 2% annually while the long-term funds on the
average cost 8%. To improve the earnings, management plans to shift P 200,000 of its
current assets to fixed assets and P 150,000 of long-term funds to current liabilities.
What would be the increase in the earnings as a result of the change in asset mix
and financing mix?
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