Apex Ltd. is attempting to determine the optimal level of current assets for the coming year. Management expects sales to increase to $2 million as a result of the just completed asset expansion. Fixed assets total $1 million, and Apex wants to maintain a 60 percent debt ratio. Its interest cost on all debt is 8 percent. Three different current asset levels are being evaluated by the firm. These are (i1) a tight policy requiring current assets of 45% of projected sales (ii) a moderate policy with current asset levels being 50% of projected sales (iii) a relaxed policy with current assets being 60% of projected sales. The firm's tax rate is 40%. EBIT = $240,000. What is the expected return on equity under each current asset level?
Apex Ltd. is attempting to determine the optimal level of current assets for the coming year. Management expects sales to increase to $2 million as a result of the just completed asset expansion. Fixed assets total $1 million, and Apex wants to maintain a 60 percent debt ratio. Its interest cost on all debt is 8 percent. Three different current asset levels are being evaluated by the firm. These are (i1) a tight policy requiring current assets of 45% of projected sales (ii) a moderate policy with current asset levels being 50% of projected sales (iii) a relaxed policy with current assets being 60% of projected sales. The firm's tax rate is 40%. EBIT = $240,000. What is the expected return on equity under each current asset level?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter21: Supply Chains And Working Capital Management
Section: Chapter Questions
Problem 13P: Payne Products had $1.6 million in sales revenues in the most recent year and expects sales growth...
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