F Enterprises is evaluating whether to do a either a restricted or relaxed investment policy on current assets. The sales of F Enterprises for the year is P400,000 while fixed assets are P100,000. Debt represents half of the firm’s assets. The firm’s debt has an interest rate of 10%. The EBIT of F Enterprises is P36,000. The entity is subject to income tax rate of 40%. Using a restricted policy, current assets will account for 15% of sales while the relaxed policy will increase share of current assets to 25 percent of sales. What will be the variance between projected return on equity between restricted and the relaxed investment policy on current assets?
F Enterprises is evaluating whether to do a either a restricted or relaxed investment policy on current assets. The sales of F Enterprises for the year is P400,000 while fixed assets are P100,000. Debt represents half of the firm’s assets. The firm’s debt has an interest rate of 10%. The EBIT of F Enterprises is P36,000. The entity is subject to income tax rate of 40%. Using a restricted policy, current assets will account for 15% of sales while the relaxed policy will increase share of current assets to 25 percent of sales. What will be the variance between projected return on equity between restricted and the relaxed investment policy on current assets?
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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F Enterprises is evaluating whether to do a either a restricted or relaxed investment policy on current assets. The sales of F Enterprises for the year is P400,000 while fixed assets are P100,000. Debt represents half of the firm’s assets. The firm’s debt has an interest rate of 10%. The EBIT of F Enterprises is P36,000. The entity is subject to income tax rate of 40%. Using a restricted policy, current assets will account for 15% of sales while the relaxed policy will increase share of current assets to 25 percent of sales. What will be the variance between projected return on equity between restricted and the relaxed investment policy on current assets?
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