Suppose AOL Time Warner, Inc. is having a bad year in 2011, as the company

Question # 00102602 Posted By: echo7 Updated on: 09/12/2015 10:53 AM Due on: 10/12/2015
Subject Business Topic General Business Tutorials:
Question
Dot Image

Suppose AOL Time Warner, Inc. is having a bad year in 2011, as the company has incurred a $4.9 billion net loss. The loss has pushed most of the return measures into the negative column and the current ratio dropped below 1.0. The company’s debt ratio is still only 0.27. Assume top management of AOL Time Warner is pondering ways to improve the company’s ratios. In particular, management is considering the following transactions:

  • Sell of the cable television segment of the business for $30 million (receiving half in cash and half in the form of a long-term not receivable.) Book value of the cable television business is $27 million.
  • Borrow $100 million on long-term debt.
  • Purchase treasury stock for $500 million cash.
  • Write off one-fourth of goodwill carried on the books at $128 million.
  • Sell advertising at the normal gross profit of 60%. The advertisements run immediately.


Explain the effects of the above transactions (increase, decrease, or no effect) on the following ratios of AOL Time Warner. Also, evaluate each transaction’s effect as positive, negative or unclear.

  • Current ratio
  • Debt ratio
  • Times-interest-earned ratio
  • Return on Equity
  • Book value per share of common stock
Dot Image
Tutorials for this Question
  1. Tutorial # 00096928 Posted By: echo7 Posted on: 09/12/2015 10:53 AM
    Puchased By: 3
    Tutorial Preview
    in the form of a ...
    Attachments
    aaannnnnsssser_ffffiiillle.docx (18.43 KB)
    Recent Feedback
    Rated By Feedback Comments Rated On
    m...ega Rating Always provide updated content 11/16/2015

Great! We have found the solution of this question!

Whatsapp Lisa