Athena Ltd manufactures swimming goggles and sell them to retail stores. The managers decide to...
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Athena Ltd manufactures swimming goggles and sell them to retail stores. The managers decide to obtain the new manufacturing equipment worth $850,000 to enhance the automation in production. As a result of obtaining such equipment, the businesss total expense will be reduced by $70,000. The managers are considering the following options:
- Option 1: The owner contributes the equipment to Athena Ltd.
- Option 2: Purchase the equipment with existing cash at the business bank account, assuming that Athena Ltd has sufficient cash at bank.
The managers have provided you with following information prior to obtaining the equipment:
| Sales revenue | $600,000 |
| Net profit | $230,000 |
| Total non-current liabilities | $500,000 |
| Total liabilities | $900,000 |
| Total current assets | $1,300,000 |
| Total assets | $1,500,000 |
| Total equity | $600,000 |
Required:
Calculate the Debt to Equity Ratio, Current Ratio and Net Profit Margin after obtaining the equipment if either Option 1 or Option 2 is taken.
(5 marks)
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| Option 1 | Option 2 |
| Debt to Equity Ratio |
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| Current Ratio |
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| Net Profit Margin |
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