Q1) Collins Company had following partial balance sheet and complete income statement information for 1998:
Partial Balance Sheet:
| Cash |
$ 20 |
| A/R |
1,000 |
| Inventories |
2,000 |
| Total current assets |
$ 3,020 |
| Net fixed assets |
2,980 |
| Total assets |
$ 6,000 |
Income Statement:
| Sales |
$10,000 |
| Cost of goods sold |
9,200 |
| EBIT |
$ 800 |
| Interest (10%) |
400 |
| EBT |
$ 400 |
| Taxes (40%) |
160 |
| Net Income |
$ 240 |
Industry average DSO is 30 (360-day year). Collins plans to change its credit policy so as to cause its DSO to equal industry average, and this change is expected to have no effect on either sales or cost of goods sold. If cash generated from reducing receivables is utilized to retire debt (which was outstanding all last year and which has 10 percent interest rate), what will Collins' debt ratio (Total debt/Total assets) be after change in DSO is reflected in balance sheet?