What is expected return on equity under each asset policy

Assignment Help Accounting Basics
Reference no: EM133185019

Question - Example on the working capital management - Your company wants to establish its current assets policy. Fixed assets are $ 1 million, the company has no operating current liabilities. Earnings are expected to be 12% before interest and taxes, on sales of $ 2 million. The marginal tax rate is 30%, the interest rate is 8% on all debt and a 0.40 leverage ratio should be maintained.

Three alternatives regarding the projected current asset level are available:

1. An aggressive policy, requiring current assets of only 40% of projected sales

2. A moderate policy of 50% of sales in current assets

3. A conservative policy, requiring current assets of 60% of sales.

Required -

1. What is the expected return on equity under each asset policy?

2. Explain how would the overall riskiness of the company differ under each policy?

Reference no: EM133185019

Questions Cloud

Assess economic trade-offs associated : Assess the economic trade-offs associated with obtaining inputs through spot exchange, contract, or vertical integration.
Determine the break-even point in units for both products : The company expects fixed costs to be $144,000. The firm expects 60 percent of its sales (in units} to be of Product X. Determine the break-even point in units
Design solutions applying relational database techniques : Design solutions applying relational database techniques to complex problems and communicate these solutions to all stakeholders
Discuss the evolution of presidential power : Explain the U.S. Congress's structure and makeup. Describe how bills become laws. Describe and discuss the evolution of presidential power.
What is expected return on equity under each asset policy : An aggressive policy, requiring current assets of only 40% of projected sales. What is expected return on equity under each asset policy
What was rochelle balance at the beginning of april : Rochelle Destin bough a new car, her monthly April interest was $294, the current rate of interest is 9%, What was Rochelle's balance at the beginning of April
Gasoline in order to prevent prices from getting too high : Assume that the government imposed a price ceiling on gasoline in order to prevent prices from getting too high.
How many customers will he see at the salon : A typical service time at either salon lasts 30 minutes (with a standard deviation of 30 minutes). If Newt goes to SHC, how many customers will he see at salon
Define the price elasticity of demand : Define the price elasticity of demand? Define the cross-price elasticity of demand? Define elastic, inelastic, and unitary elasticity means.

Reviews

Write a Review

Accounting Basics Questions & Answers

  Explain why the development process of international account

Explain why the development process of international accounting harmonization is difficult and complex. The IASB and the US Financial Accounting Standards Board

  Which of the following describes the differences between

which of the following describes the differences between job-order and process costing?job-order costing is used in

  Calculate cranberry regular income tax liability

If the current year is a calendar year ending on December 31, 2017, calculate Cranberry's regular income tax liability

  Ethics and standard costs farmer frank''s produces

Ethics and Standard Costs Farmer Frank's produces items from local farm products and distributes them to supermarkets

  Compute the inventory balance as of March

Normal scrap loss on regular product lines is considered negligible. Compute the inventory balance as of March 31

  Roxbury manufacturing company is a privately owned business

Roxbury Manufacturing Company is a privately owned business. Products manufactured by Roxbury had been doing very well until the year

  How a corporation discloses its income tax expense

Explain how a corporation discloses its income tax expense (or credit) for the year under intraperiod allocation

  Describe the related party transactions disclosed

What are considered related party transactions in the preparation of audit financial statements? Describe the related party transactions disclosed

  Company issued 5 million 25 year bonds at 5500000 on jan 1

company issued 5 million 25 year bonds at 5500000 on jan 1 2012. the interest rate or the coupon rate is 8 and interest

  The most probable value to role on two dice is 7 the most

the most probable value to role on two dice is 7. the most probable number of heads in two coin flips is one head. what

  If fixed costs are 200000 and the unit contribution margin

if fixed costs are 200000 and the unit contribution margin is 20 what amount of units must be sold in order to have a

  Amount of cash paid to suppliers of merchandise

What is the amount of cash paid to suppliers of merchandise during the reporting period if its cost of goods sold is $80 million?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd