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

Why jit is a broad philosophy that pursues three main goals, 1. Identify an...

1. Identify and describe the three zones associated with buffers. Explain your answer in detail. 2. JIT is a broad philosophy that pursues three main goals. What are they? Expla

Long term capacity expansion, Long term Capacity Expansion For the purpo...

Long term Capacity Expansion For the purpose of expansion of the long term capacity of the term the firm may decide to adapt and one more of the followings. 1.The firm may give

Explain labour practices requirements, From the legal perspective, what cha...

From the legal perspective, what challenges May supervisors face in filling the positions? How might they unintentionally run short of regulatory hiring and labour practices requir

Explain competencies required of hr management, Review the competencies req...

Review the competencies required of HR management and recommend at least two additional areas in which HR managers should be competent. Provide specific examples to support your re

Explain capital expense, Eric Johnson (using data from Problem 1.6) determi...

Eric Johnson (using data from Problem 1.6) determines his costs to be as follows: • Labor: $10 per hour • Resin: $5 per pound • Capital expense: 1% per month of investment • Energy

Explain what is a serial entrepreneur, 1. What is a serial entrepreneur? Is...

1. What is a serial entrepreneur? Is this a new phenomenon? 2. What does it take to be a successful serial entrepreneur? 3. Steve Chen, former PayPal engineer who co-founded

Find the feasible solution of transportation problem, Example: Find the fe...

Example: Find the feasible solution of  followings  transportation  problem by VAM and optimize  it by  stepping  stone methods. Availability  of Warehouse

Explain the effectiveness of southwest airlines, "Southwest Airlines" Pleas...

"Southwest Airlines" Please respond to the following: • Evaluate the effectiveness of Southwest Airlines execution of its low-cost / low-price / no-frills strategy to the busine

Explain the probability that the second item is defective, A production pro...

A production process is known to produce a particular item in such a way that 5% of these are defective. If two items are randomly selected as they come off the production line, wh

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