Calgary Company is thinking of modifying itscurrent assets investment policy. Fixed assets are $600,000, sales are projected at $3 million,the EBIT/Sales ratio is projected at 15%, the interest rate is 10% on all debt, the federalplus-state tax rate is 40%, and Calgary plans to maintain a 50% debt-to-assets ratio. Threealternative current assets investment policies are under consideration: 40%, 50%, and 60%of projected sales. What is the expected return on equity under each alternative?

Calgary Company is thinking of modifying itscurrent assets investment policy. Fixed assets are $600,000, sales are projected at $3 million,the EBIT/Sales ratio is projected at 15%, the interest rate is 10% on all debt, the federalplus-state tax rate is 40%, and Calgary plans to maintain a 50% debt-to-assets ratio. Threealternative current assets investment policies are under consideration: 40%, 50%, and 60%of projected sales. What is the expected return on equity under each alternative?

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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