BBB company has $54 million of current assets and $58 million of noncurrent assets. It forecasts an EBIT of $10.4 million and pays income taxes at a 35% rate. Short-term bank notes carry a 5% interest rate, and the company can issue long-term bonds at 7%. The company has set a target debt ratio of 45%. Required: A. For a maturity mix of 60% current and 40% long-term debt, prepare the company's abbreviated balance sheet. B. For a maturity mix of 60% current and 40% long-term debt, prepare the company's financial half of its income statement. C. Based on the financial statements above, calculate the return on equity ratio in order to evaluate the company's risk and return. D. Based on the financial statements above, calculate the current ratio in order to evaluate the company's risk and return.
Macrohedging
Hedging or hedge accounting is a risk-mitigation technique used to protect the current financial position from potential losses. Hedging is often confused with speculating. The major difference between the two is that hedging does not involve guessing, whereas speculation is based on guessing the direction of movement of the underlying asset to book profits.
Finance Mathematics
The area of applied mathematics known as mathematical finance, also known as quantitative finance or financial mathematics is concerned with the mathematical modeling of financial markets. The application of mathematical methods to financial problems is known as financial mathematics. A financial market is a place where people can exchange low-cost financial securities and derivatives. Stocks and bonds, raw materials, and precious metals, both of which are regarded as commodities in the stock markets, are examples of securities. It uses probability, statistics, stochastic processes, and economic theory as methods.
BBB company has $54 million of current assets and $58 million of noncurrent assets. It forecasts
an EBIT of $10.4 million and pays income taxes at a 35% rate. Short-term bank notes carry a 5%
interest rate, and the company can issue long-term bonds at 7%. The company has set a target
debt ratio of 45%.
Required:
A. For a maturity mix of 60% current and 40% long-term debt, prepare the company's
abbreviated
B. For a maturity mix of 60% current and 40% long-term debt, prepare the company's
financial half of its income statement.
C. Based on the financial statements above, calculate the
evaluate the company's risk and return.
D. Based on the financial statements above, calculate the current ratio in order to evaluate
the company's risk and return.
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