Figure 6-11 Net working capital as a percentage of sales and the current ratio Working capital to sales expressed as % 18 . Current ratio gem . Average current ratio 1.8 16 1.6 1.4 1.2 1.0 0.8 0.6 0.4 -Average working capital to sales (%) 14 12 10 1 8 6 4 2 0.2 0 し0
Block, S., Hirt, G., & Danielsen, B. (2017). Foundations of
Chapter 6, Problem #10:
Assume that Hogan Surgical Instruments Co. has $2,500,000 in assets. If it goes with a low-liquidity plan for the assets, it can earn a return of 18 percent, but with a high-liquidity plan, the return will be 14 percent. If the firm goes with a short-term financing plan, the financing costs on the $2,500,000 will be 10 percent, and with a long-term financing plan, the financing costs on the $2,500,000 will be (Review image for parts A, B, and C).
A. Compute the anticipated return after financing costs with the most aggressive asset financing mix.
B. Compute the anticipated return after financing costs with the most conservative asset financing mix.
C. Compute the anticipated return after financing costs with the two moderate approaches to the asset financing mix.
D. Would you necessarily accept the plan with the highest return after financing costs?
Thank you in advance!
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