Ben Corporation is deciding whether to pursue a restricted or relaxed working capital investment policy. The firm's annual sales are expected to total $2,400,000, its fixed assets turnover ratio equals 3.0, and its debt and common equity are each 50% of total assets which is composed of fixed and current assets. EBIT is $130,000, the interest rate on the firm's debt is 8%, and the tax rate is 30%. If the company follows a restricted policy, its total assets turnover will be 2.4. Under a relaxed policy its total assets turnover will be 2.0. a. What is the projected ROE under the relaxed policy? b. TIE ratio under relaxed policy
Ben Corporation is deciding whether to pursue a restricted or relaxed working capital investment policy. The firm's annual sales are expected to total $2,400,000, its fixed assets turnover ratio equals 3.0, and its debt and common equity are each 50% of total assets which is composed of fixed and current assets. EBIT is $130,000, the interest rate on the firm's debt is 8%, and the tax rate is 30%. If the company follows a restricted policy, its total assets turnover will be 2.4. Under a relaxed policy its total assets turnover will be 2.0. a. What is the projected ROE under the relaxed policy? b. TIE ratio under relaxed policy
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 4P
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Ben Corporation is deciding whether to pursue a restricted or relaxed
a. What is the projected ROE under the relaxed policy?
b. TIE ratio under relaxed policy
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