CURRENT ASSETS INVESTMENT POLICY Calgary Company is thinking of modifying its current 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 federal-plus-state tax rate is 40%, and Calgary plans to maintain a 50% debt-to-assets ratio. Three alternative current assets investment policies are under consideration: 40%, 50%, and 60% of projected sales. What is the expected return on equity under each alternative?
CURRENT ASSETS INVESTMENT POLICY Calgary Company is thinking of modifying its current 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 federal-plus-state tax rate is 40%, and Calgary plans to maintain a 50% debt-to-assets ratio. Three alternative current assets investment policies are under consideration: 40%, 50%, and 60% of projected sales. What is the expected return on equity under each alternative?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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CURRENT ASSETS INVESTMENT POLICY Calgary Company is thinking of modifying its current 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 federal-plus-state tax rate is 40%, and Calgary plans to maintain a 50% debt-to-assets ratio. Three alternative current assets investment policies are under consideration: 40%, 50%, and 60% of projected sales. What is the expected return on equity under each alternative?
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