Lany 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 asset turnover ratio equals 3.0, and its debt and common equity are each 50% of the total asset which is composed of fixed and current assets. EBIT is 130,000, the interest rate of the firm’s debt is 8%, and the tax rate is 30%. If the company follows a restricted policy, its total asset turnover will be 2.4. Under a relaxed policy its total asset turnover will be 2.0. How much would be the current assets under relaxed policy? Refer to the previous item, what is the projected ROE under the restricted policy? Use 2 decimal places for your final answerRefer to the previous item, what is the TIE ratio under the related policy? Use 2 decimal places for your final answer.

Given as, The Fixed Assets Turnover Ratio is Activity Ratio. Fixed Assets Turnover Ratio as, =…

Answered: e is 30%. If the company follows a…

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 9P

Related questions

Question

Lany 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 asset turnover ratio equals 3.0, and its debt and common equity are each 50% of the total asset which is composed of fixed and current assets. EBIT is 130,000, the interest rate of the firm’s debt is 8%, and the tax rate is 30%. If the company follows a restricted policy, its total asset turnover will be 2.4. Under a relaxed policy its total asset turnover will be 2.0. How much would be the current assets under relaxed policy?
Refer to the previous item, what is the projected ROE under the restricted policy? Use 2 decimal places for your final answer
Refer to the previous item, what is the TIE ratio under the related policy? Use 2 decimal places for your final answer.

Expert Solution