User Account

All Pages

What is expected return on equity under each current asset

Assignment Help Finance Basics
Reference no: EM132905643

Problem - Current Asset Usage Policy - Payne Products had $1.6 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $1 million of fixed assets and intends to keep its debt ratio at its historical level of 60%. Payne's debt interest rate is currently 8%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 12% of sales. Payne's tax rate is 40%.

Required -

a. What is the expected return on equity under each current asset level?

b. In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption? Why or why not?

c. How would the overall risk of the firm vary under each policy?

Reference no: EM132905643

Questions Cloud

How much loss could be deducted by the corporation : How much loss could be deducted by the corporation? A domestic corporation had an old computer costing P 50,000 with accumulated depreciation of P 30,000.
What would be its average payables : If the firm did not take discounts but did pay on the due date, what would be its average payables and the cost of this nonfree trade credit
How much is the deductible loss : How much is the deductible loss in 2021? A taxpayer has a business property having an adjusted basis of P 100,000. It was completely destroyed by fire in 2020.
How much is the taxable income : How much is the taxable income, assuming the retailer is a domestic corporation and chooses the optional standard deduction?
What is expected return on equity under each current asset : Payne Products had $1.6 million in sales revenues in the most recent year. What is the expected return on equity under each current asset level
How much final taxes were paid by taxpayer on passive income : How much final taxes were paid by the taxpayer on passive income? A resident citizen businessman, married, with five (5) dependent children
Security planning : As a manager, you're going to be responsible for security planning. Humans are the weakest link in the armor of security.
Contrast client-server computing and cloud computing : Compare and contrast client-server computing and cloud computing.
Prepare the journal entries for the original subscription : Prepare the journal entries for the original subscription, the collection of the down payments, the collection of the balance of the subscription price

Reviews

Write a Review

Finance Basics Questions & Answers

  Determining the identical annual withdrawals

You have exactly 30 years until retirement. You will be making monthly deposits into your retirement account that is expected to earn 0.80% per month.

  What are the two financial services sectors

What are the two financial services sectors that are involved in influencing interest rate movements and how do they interrelate?

  What was lance? murdock rate of? return

Lance Murdock purchased a wooden statue of a Conquistador for $ 7,500 to put in his home office 7years ago. Lance has recently? married, and his home office

  Computation of net income

Fred Gowen opened Gowen Retail Sales as a sole proprietorship and recorded the following transactions during his 1st month in business:

  Address of the investment management firm

Finding the address of the investment management firm - especially need portfolio managers or human resources managers

  Interest rate makes him indifferent between the two options

He can borrow money from his bank to buy the car. What interest rate makes him indifferent between the two options?

  What journal entry will be made by wazowski

Wazowski Enterprises sells $55,000 of its customer receivables to Randall Corp without recourse. Randall charges a 6% factoring fee for this service.

  Identify the crime is committed in scenario

Jack and diane are married and both executives at a large multinational electronics corporation. The couple holds substantial company stock and majority of their retirement funds depend on corporation stock performances.

  Principle of the conservation of mechanical energy

Applying the principle of the conservation of mechanical energy in the presence of dissipative forces, determine its final speed as it reaches the bottom of the slope.

  Provide any analysis to justify your decisions

You do not have to provide any analysis to justify your decisions. You must only provide some reason for picking that company.

  Give some example of forward market in tourism

What is forward market? Give some example of forward market in tourism

  Achieving the objectives for which they were established

How effective have ACOs (Accountable care organization) been in achieving the objectives for which they were established?

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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