The Calgary Company is attempting to establish a current assets policy. Fixed assets are Tk. 6,00,000 and the firm plans to maintain a 40% debt to assets ratio. The interest rate is 10% on all debt. Three alternative current asset policies are under considerations: 40, 50 and 60 percent of projected sales. The company expects to earn 10% before interest and taxes on sales of Tk. 3 million. Calgary`s effective tax rate is 40 percent. What is the expected return on equity under each alternative?
The Calgary Company is attempting to establish a current assets policy. Fixed assets are Tk. 6,00,000 and the firm plans to maintain a 40% debt to assets ratio. The interest rate is 10% on all debt. Three alternative current asset policies are under considerations: 40, 50 and 60 percent of projected sales. The company expects to earn 10% before interest and taxes on sales of Tk. 3 million. Calgary`s effective tax rate is 40 percent. 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
Problem 1PS
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The Calgary Company is attempting to establish a current assets policy. Fixed assets are
Tk. 6,00,000 and the firm plans to maintain a 40% debt to assets ratio. The interest rate
is 10% on all debt. Three alternative current asset policies are under considerations: 40,
50 and 60 percent of projected sales. The company expects to earn 10% before interest
and taxes on sales of Tk. 3 million. Calgary`s effective tax rate is 40 percent. What is
the expected
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