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Submitted by Dice on Sat, 2013-09-07 15:55
due on Wed, 2013-09-11 15:55
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Scott Equipment Organization Paper (attachment)

Scott Equipment Organization Paper

Based on the following scenario, complete the calculations below:

Scott Equipment Organization is investigating the use of various combinations of short-term and long-term debt in financing its assets. Assume that the organization has decided to employ $30 million in current assets, along with $35 million in fixed assets, in its operations next year. Given the level of current assets, anticipated sales and Earnings Before Interest and Taxes (EBIT) for next year are $60 million and $6 million, respectively. The organization's income tax rate is 40%; Stockholders' equity will be used to finance $40 million of its assets, with the remainder being financed by short-term and long-term debt. Scott's is considering implementing one of the following financing policies:

Amount of Short-Term Debt

Financial Policy In mil. LTD (%) STD (%)

Aggressive

(large amount of short-term debt) $24 8.5 5.5

Moderate

(moderate amount of short-term debt) $18 8.0 5.0

Conservative

(small amount of short-term debt) $12 7.5 4.5

a.      Determine the following for each of the financing policies:

1)     Expected rate of return on stockholders' equity

2)     Net working capital position

3)     Current ratio

b.     Evaluate the profitability versus risk trade-offs of these three policies. Would you rate each one "low", "medium", or "high" with respect to profitability? Would you rate each one "low", "medium", or "high" with respect to risk?  

Answer
Submitted by Dice on Sat, 2013-09-07 16:00
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Scott Equipment Organization Paper

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Scott Equipment Organization Paper

Based on the following scenario, complete the xxxxxxxxxxxx xxxxxx

Scott Equipment xxxxxxxxxxxx is xxxxxxxxxxxxx xxx xxx xx xxxxxxx combinations xx short-term xxx long-term xxxx in xxxxxxxxx xxx xxxxxxx Assume xxxx xxx organization has decided xx employ $30 xxxxxxx in current assets, along xxxx $35 million in fixed assets, in its xxxxxxxxxx next xxxxx Given the level of xxxxxxx xxxxxxx anticipated xxxxx xxx Earnings xxxxxx xxxxxxxx xxx Taxes (EBIT) xxx next year are xxx xxxxxxx xxx xx million, xxxxxxxxxxxxx xxx organization’s xxxxxx xxx xxxx xx xxxx xxxxxxxxxxxxxxx equity xxxx xx used to xxxxxxx xxx million xx xxx assets, xxxx xxx remainder xxxxx xxxxxxxx by short-term xxx long-term debt. xxxxxxxxx xx considering xxxxxxxxxxxx xxx of the following xxxxxxxxx policies:

xxxxxx xx xxxxxxxxxx xxxx

xxxxxxxxx xxxxxx                                                        In mil.  LTD (%) STD xxx

xxxxxxxxxx xxxxxx xxxxxx

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file1.doc preview (788 words)

Running xxxxx Scott xxxxxxxxx Organization Paper� � xxxx \* MERGEFORMAT �1� �� Scott Equipment xxxxxxxxxxxx xxxxxxxx � PAGE xx MERGEFORMAT xxxxxxxxxxxxxxx

Scott xxxxxxxxx xxxxxxxxxxxx Paper xxxxxxxx on xxx xxxxxxxxx xxxxxxxxx xxxxxxxx xxx calculations xxxxxx �Scott Equipment Organization is xxxxxxxxxxxxx the use xx xxxxxxx xxxxxxxxxxxx of xxxxxxxxxx and xxxxxxxxx xxxx xx xxxxxxxxx xxx xxxxxxx xxxxxx xxxx the xxxxxxxxxxxx xxx xxxxxxx to employ $30 xxxxxxx in current assets, xxxxx with xxx million xx xxxxx assets, xx xxx operations next xxxxx Given the xxxxx of xxxxxxx xxxxxxx xxxxxxxxxxx sales xxx Earnings xxxxxx xxxxxxxx xxx Taxes (EBIT) xxx xxxx year xxx $60 xxxxxxx xxx $6 xxxxxxxx respectively. xxx organization's income tax xxxx xx 40%; xxxxxxxxxxxxx xxxxxx will xx used to xxxxxxx $40 million xx xxx assets, with xxx xxxxxxxxx xxxxx financed by short-term xxx xxxxxxxxx xxxxx xxxxxxx is considering xxxxxxxxxxxx xxx of xxx xxxxxxxxx xxxxxxxxx policies: �Amount xx

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