Wilson electric company a manufacturer of various types of

Reference no: EM13603393

Wilson Electric Company, a manufacturer of various types of electrical equipment, is examining its working capital investment policy for next year. Projected fixed assets and current liabilities are $20 million and $18 million, respectively. Sales and EBIT are partially a function of the company's investment in working capital-particularly its investment in inventories and receivables. Wilson is considering the following three different working capital investment policies: Investment in Working Capital Current Assets Projected Sales EBIT Investment (in Millions (in Millions (in Millions Policy of Dollars) of Dollars) of Dollars) Aggressive (small investment $28 $59 $5.9 in current assets) Moderate (moderate investment 30 60 6.0 in current assets) Conservative (large investment 32 61 6.1 in current assets) a. Determine the following for each of the working capital investment policies:

i. Rate of return on total assets (that is, EBIT/total assets)

ii. Net working capital position

iii. Current ratio b. Describe the profitability versus risk trade-offs of these three policies.

Reference no: EM13603393

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