How much cash could Goodyear pay for a long-term investment and still be in compliance with the…


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How much cash could Goodyear pay for a long-term investment and still be in compliance with the… 1 answer below » Assessing economic consequences Condensed balance sheets for 2007 and 2008 and the 2009 income statement for Goodyear, the world”s largest tire company, are as follows (dollars in millions). View complete question » 2008 2007 Current assets $ 8,340 $10172 Long-term assets 6886 7019 Total assets $15226 $17191 Current liabilities $ 4779 $ 4664 Long-term liabilities 9425 9677 Shareholders’ equity 1022 22611 Total liabilities and shareholders” equity $15226 $17191 Revenues $19488 Assessing economic consequences Condensed balance sheets for 2007 and 2008 and the 2009 income statement for Goodyear, the world”s largest tire company, are as follows (dollars in millions). 2008 2007 Current assets $ 8,340 $10172 Long-term assets 6886 7019 Total assets $15226 $17191 Current liabilities $ 4779 $ 4664 Long-term liabilities 9425 9677 Shareholders’ equity 1022 22611 Total liabilities and shareholders” equity $15226 $17191 Revenues $19488 Expenses 19565 Net loss $ (77) a. Early in 2009, assume that Goodyear is considering the following transactions. Treat each separately and compute how it would affect the company”s ratios of current assets divided by current liabilities and total liabilities divided by total shareholders” equity. Purchase $1,000 in inventory on account. Issue common stock for $2,000 cash. Refinance a $500 short-term liability with a $500 long-term liability. Purchase equipment in exchange for a $400 long-term note payable. Pay a $1,000 short-term debt with cash. b. Assume that the terms of Goodyear”s long-term debt require the company to maintain a ratio of current assets divided by current liabilities of 1.65. Is this covenant restriction relevant to whether the company should enter into any of the above transactions? Explain. c. How much cash could Goodyear pay for a long-term investment and still be in compliance with the covenant? View less » Jun 11 2014 04:05 PM

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