Columbus, Inc. is really making it big in Wisconsin. Their sales predictions for next year are...
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Columbus, Inc. is really making it big in Wisconsin. Their sales predictions for next year are $10 million, and fixed assets will grow to $2,000,000. Projected earnings before interest and taxes are 25% of sales with a 40% tax rate. Columbus policies in the past have been carefully monitored. They have maintained an interest rate of 12% on all short- and long-term loans, which totals 36% of all assets. Columbus Inc. is now struggling over how their investment in current assets is affecting the return on common shareholders' equity. What is the company's return on equity based upon a working capital strategy calling for a current asset-to-sales ratio of 40%? (15 marks) b. Discuss the risk-return relationship involved in managing the firm's working capital? (7marks) C.What are some of the risk-return trade-offs associated with adopting a more liberal trade credit policy? (3 marks) Columbus, Inc. is really making it big in Wisconsin. Their sales predictions for next year are $10 million, and fixed assets will grow to $2,000,000. Projected earnings before interest and taxes are 25% of sales with a 40% tax rate. Columbus policies in the past have been carefully monitored. They have maintained an interest rate of 12% on all short- and long-term loans, which totals 36% of all assets. Columbus Inc. is now struggling over how their investment in current assets is affecting the return on common shareholders' equity. What is the company's return on equity based upon a working capital strategy calling for a current asset-to-sales ratio of 40%? (15 marks) b. Discuss the risk-return relationship involved in managing the firm's working capital? (7marks) C.What are some of the risk-return trade-offs associated with adopting a more liberal trade credit policy? (3 marks)
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a To calculate the companys return on equity based upon a working capital strategy calling for a current assettosales ratio of 40 we need to first cal... View the full answer
Related Book For
Fundamentals of Investments, Valuation and Management
ISBN: 978-1259720697
8th edition
Authors: Bradford Jordan, Thomas Miller, Steve Dolvin
Posted Date:
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