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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?

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

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xxxxx xxxxxxxxx xxxxxxxxxxxx xxxxx

xx

Scott xxxxxxxxx Organization Paper

Based on xxx following xxxxxxxxx complete the xxxxxxxxxxxx below:

xxxxx xxxxxxxxx Organization xx investigating the xxx of various xxxxxxxxxxxx of xxxxxxxxxx and long-term xxxx in xxxxxxxxx its assets. xxxxxx that the xxxxxxxxxxxx has decided to employ \$30 xxxxxxx in current assets, xxxxx xxxx xxx million in xxxxx assets, in its xxxxxxxxxx xxxx xxxxx xxxxx xxx xxxxx xx current assets, anticipated sales and Earnings xxxxxx Interest and Taxes (EBIT) for next xxxx are \$60 million and \$6 million, xxxxxxxxxxxxx xxx xxxxxxxxxxxxxxxx income tax xxxx is 40%; Stockholders’ equity xxxx be used xx xxxxxxx \$40 million xx xxx xxxxxxx xxxx the xxxxxxxxx being xxxxxxxx by short-term and long-term xxxxx xxxxxxxxx is xxxxxxxxxxx implementing xxx xx xxx following financing xxxxxxxxx

Amount xx xxxxxxxxxx Debt

xxxxxxxxx xxxxxx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx mil.  xxx xxx STD xxx

Aggressive (large xxxxxx xx xxxxxxxxxx xxxxx            xxxxxxxxxxxxx   xxxxxxxxxxx    5.5

Moderate (moderate xxxxxx xx short-term xxxxx xxxxxxxxxx xxxxxxxxxxxxx   xxxxxxxxxxx xxxx 5.0

xxxxxxxxxxxx xxxxxx amount of short-term debt) xxxxxxxxxxxx xxxxxxxxxxxxx xx xxxxxxxxxxx    4.5

a.      xxxxxxxxx xxx xxxxxxxxx for xxxx of the xxxxxxxxx xxxxxxxxx

xxxxxxxxxx Expected xxxx xx xxxxxx on stockholders’ xxxxxx

2)     xxx xxxxxxx capital

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Running head: Scott xxxxxxxxx xxxxxxxxxxxx xxxxxxxx xxx PAGE \* MERGEFORMAT �1� �� Scott xxxxxxxxx Organization Paper� xxx PAGE xx MERGEFORMAT �6� ��

xxxxx xxxxxxxxx xxxxxxxxxxxx Paper �Based on the xxxxxxxxx scenario, complete xxx xxxxxxxxxxxx below: �Scott Equipment xxxxxxxxxxxx is investigating xxx use xx various xxxxxxxxxxxx of short-term and long-term debt in xxxxxxxxx xxx xxxxxxx Assume that xxx organization has decided to xxxxxx \$30 million in xxxxxxx xxxxxxx xxxxx xxxx xxx xxxxxxx xx fixed assets, xx xxx xxxxxxxxxx xxxx year. xxxxx the level of xxxxxxx xxxxxxx anticipated xxxxx xxx xxxxxxxx xxxxxx xxxxxxxx and xxxxx (EBIT) for xxxx xxxx xxx \$60 million xxx \$6 xxxxxxxx xxxxxxxxxxxxx The organization's xxxxxx tax rate is xxxx Stockholders' equity will xx used xx finance xxx million of xxx xxxxxxx xxxx xxx xxxxxxxxx being financed xx xxxxxxxxxx xxx xxxxxxxxx debt. xxxxxxx xx xxxxxxxxxxx xxxxxxxxxxxx xxx xx xxx xxxxxxxxx xxxxxxxxx xxxxxxxxx �Amount of

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