Explain net income, Operation Management

Assignment Help:

Scott Equipment Organization is investigating various combinations of short- and long-term debt in financing assets. Assume the organization has decided to employ $10 million in current assets and $15 million in fixed assets in its operations next year, and EBIT for next year is $8 million. The organization's income tax rate is 40%. Stockholders' equity will be used to finance $15 million of assets, with the remainder financed by short- and long-term debt. The organization is considering implementing one of the policies below. Current Assets: $10 million Fixed Assets: $15 million Total Assets : $25 million Stockholders' Equity: $15 million Total Amount of Assets to be financed by debt: $10 million Tax Rate: 40% Total EBIT: $8 million Aggressive Strategy Short Term Debt: $8 million, 6% interest rate Long Term Debt: $2 million, 8% interest rate Moderate Strategy Short Term Debt: $5 million, 5.5% interest rate Long Term Debt: $5 million,7.5% interest rate Conservative Strategy Short Term Debt: $3 million, 5.25% interest rate Long Term Debt: $7 million, 7.25% interest rate Determine the following for each policy: • Net Income • Expected rate of return on stockholders' equity (Net Income/Equity) • Net working capital position (Current Assets - Current Liabilities) • Current ratio (Current Assets/Current Liabilities) • Would you rate them low, medium, or high with respect to profitability? • Would you rate them low, medium, or high with respect to risk? • What is your recommendation to management? Why?


Related Discussions:- Explain net income

Break Even Sales, K Ltd a multi product company, furnishes you the followin...

K Ltd a multi product company, furnishes you the following data relating to the year 2000. First half sales Second half sales Sales Rs.45000 Rs.50000 Total cost Rs.40000 Rs.43000

Calculate the economic order quantity, The Managing Director of Beauty Soap...

The Managing Director of Beauty Soaps Ltd just visited a soap manufacturing firm in Malaysia and he was immensely impressed by its raw materials stock management System. He wanted

Explain the network is overloaded, Information asymmetry exists when - T...

Information asymmetry exists when - The network is overloaded - Sellers and buyers have the same information - One party in a transaction had more important information th

Explain how does the pursuit of outsourcing align, Should Galanz continue t...

Should Galanz continue to expand its capacity through outsourcing arrangements? How does the Pursuit of outsourcing align with its operations strategy?

Explain the term marketing and selling, Explain the term Marketing and Sell...

Explain the term Marketing and Selling. Marketing and Selling : The marketing theory is a management orientation which holds that the key task of the organization is to find o

Define how communicate this decision to your employees, Case Study: Social ...

Case Study: Social Media Policies, Concerted Activity and HR Management In the last few years, companies have begun initiating and implementing Social Media policies for their e

What is the optimal size of production run for solar cell, The 3M incorpora...

The 3M incorporate produces solar cell panels, and the production rate can be 8,000 pieces per day. The demand for the solar panel is 30,000 pieces per month. The fixed cost of set

What are advantage regarding problem-solving, Cultural diversity can provid...

Cultural diversity can provide a company competitive advantage regarding problem-solving. True False

Network design, 1. What is meant by the level of threshold service of a lea...

1. What is meant by the level of threshold service of a least-cost system?

Write Your Message!

Captcha
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