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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?
In both Europe and North America, established airlines are desperately cutting costs in order to compete with the increasing number of budget airlines. However, it is highly unlike
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A large supplier of electronic components has decided to control the inventory of a certain item by a periodic review, order up to R policy. The mean demand rate for this item is 5
Explain two methods for allocating costs. Justify why you selected them and how you would make the most use of them in cost analysis.
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If someone owns real estate in fee simple absolute, what does that mean?
Assume a fixed cost for a process of $15,000. The variable cost to produce each unit of product is $10 and the selling price for the finished product is $25. Which of the following
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