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

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 11P

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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 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. 1.) How much would be the current assets under relaxed policy? Use 2 decimal places for your final answer 2.) Refer to the previous item, what is the projected ROE under the restricted policy? Use 2 decimal places for your final answer 3.) Refer to the previous item, what is the TIE ratio under the relaxed policy? Use 2 decimal places for your final answer
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 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. How much would be the current assets under relaxed policy? Use 2 decimal places for your final answer 600000
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