*Required Problem Solving Using the details of Suga Company above:lf the Debt-to-Equity ratio for December 31 balances is 40%, with total liabilities of P2,000,000, how much is the total assets at the beginning of the year? * eg 100000 or (100000) Suga Company reported the following changes in the account balances for the current year: Increase (Decrease) Cash 800,000 Accounts receivable 250,000 Merchandise inventory 1,250,000 Property, Plant & Equipment (500,000) Accounts payable (400.000) Notes payable 900,000 Net income and additional investment by the owner are

Required Problem Solving Using the details of Suga Company above:lf the Debt-to-Equity ratio for December 31 balances is 40%, with total liabilities of P2,000,000, how much is the total assets at the beginning of the year? eg 100000 or (100000) Suga Company reported the following changes in the account balances for the current year: Increase (Decrease) Cash 800,000 Accounts receivable 250,000 Merchandise inventory 1,250,000 Property, Plant & Equipment (500,000) Accounts payable (400.000) Notes payable 900,000 Net income and additional investment by the owner are

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 19P

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Payne Products had $1.6 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $1 million of fixed assets and intends to keep its debt ratio at its historical level of 60%. Payne’s debt interest rate is currently 8%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 12% of sales. Payne’s tax rate is 40%. What is the expected return on equity under each current asset level? In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption? Why or why not? How would the overall risk of the firm vary under each policy?
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