Fin 419 week 4 individual assignment scott equipment organization paperDocument Transcript
The link to downloadFIN 419 Week 4 IndividualAssignment Scott EquipmentOrganization PaperScott Equipment Organization is investigating various combinations of short-and long-term debt in financing assets. Assume the organization has decidedto employ $30 million in current assets and $35 million in fixed assets in itsoperations next year, provided the level of current assets, anticipated sales,and EBIT for next year are $60 million and $6 million, respectively. Theorganization’s income tax rate is 40%. Stockholders’ equity will be used tofinance $40 million of assets, with the remainder financed by short- and long-term debt. The organization is considering implementing one of the policies inthe diagram.Amount of Short-Term DebtFinancial PolicyMillions of dollarsLTD (%)STD (%)Aggressive(large amount of short-term debt)$208.55.5Moderate(moderate amount of short-term debt)$15
8.05.0Conservative(small amount of short-term debt)$107.54.5Determine the following for each policy:· Expected rate of return on stockholders’ equity· Net working capital position· Current ratioWrite a 1,400- to 1,750-word paper in which you evaluate profitability versusrisk trade-offs of these policies. Would you rate them low, medium, or highwith respect to profitability? Would you rate them low, medium, or high withrespect to risk?