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The Rentz Corporation is attempting to determine the optimal level of current assets for the coming year. Management expects sales to increase to approximately $2 million as a result of an asset expansion presently being undertaken. Fixed assets total $1 million, and the firm wishes to maintain a 60 percent debt ratio. Rentz's interest cost is currently 8 percent on both short-term and longer-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current asset level are available to the firm: (1) a tight policy requiring current assets of only 45 percent of projected sales, (2) a moderate policy of 50 percent of sales in current assets, and (3) a relaxed policy requiring current assets of 60 percent of sales. The firm expects to generate earnings before interest and taxes at a rate of 12 percent on total sales.a. What is the expected return on equity under each current asset level? (Assume a 40 percent effective federal-plus-state tax rate.)b. In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption?c. How would the overall riskiness of the firm vary under each policy?
Assuming the assets increased by $25,000 during the year and liabilities amounted to $75,000 and $65,000 at the beginning and end of the year, respectively, calculate revenues for the year assuming the following additional information
An in-depth analysis of whether the market is efficient.
(a) Determine the annual net operating cash flows (OCF) generated by the machine. (b) What is the depreciation tax shield? c) Suppose the required rate of return is 12 percent, and the life of the project is 10 years. What is the project's NVP?
You financed $10,500 and are making regular payments of $285.00 over the 4 year life of the loan. You would like to pay off the loan a year early. Calculate the unearned interest by.
answer the two questions with a minimum of 20 words per question1 how do sinking funds reduce default risk?2 what is a
discuses the global banking crisis that happened in 2008-2009 and brief background including causes of the crisis
The prices for the Guns and Hoses Company for the first quarter of 2005 are given below. Calculate the holding period return for February.
Red Hot Chili's had annual credit sales of $800,000 over the past year. During that time, average receivables were $200,000. What was the days' sales outstanding or average collection period (ACP)?
question 1what is the future value of 4515 invested for 18 years at 19 if interest is compounded semi-annually? note do
Assume k is the cost of debt and t is the marginal tax rate, the after-tax cost of debt, ki, is best represented by the formula
How would you justify the EarthCare program to Kimpton's board of directors and stockholders? That is, what is the business case for this program?
How many Euros were they awarded in May? Did the change in the Euro work to their advantage or disadvantage and how much?
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