PROBLEM 27.4 Assume that the engineering firm in Problem 27.3 has chosen the moderate working capital Dolicy (that is, investment of Rs 3.90 crore in current assets). The company is now examining the use of long-term and short-term borrowing for financing its assets. The company will use Rs 2.50 crore of equity funds. The corporate tax cate is 35 per cent. The company is considering the following debt alternatives: Financing policy Conservative Moderate Aggressive Short-term Debt Long-term Debt (Rs cr.) (Rs cr.) 0.54 1.12 1.00 0.66 1.50 0.16 The average effective interest rate on short-term debt is 12 per cent while on long-term debt it is 16 per cent. Determine the following for each of the financing policies: (a) rate of return on shareholders' equity, (b) net working capital position, and (c) current ratio. Also, evaluate the return-risk trade offs of these policies. PROBLEM 27.4 Assume that the engineering firm in Problem 27.3 has chosen the moderate working capital Dolicy (that is, investment of Rs 3.90 crore in current assets). The company is now examining the use of long-term and short-term borrowing for financing its assets. The company will use Rs 2.50 crore of equity funds. The corporate tax cate is 35 per cent. The company is considering the following debt alternatives: Financing policy Conservative Moderate Aggressive Short-term Debt Long-term Debt (Rs cr.) (Rs cr.) 0.54 1.12 1.00 0.66 1.50 0.16 The average effective interest rate on short-term debt is 12 per cent while on long-term debt it is 16 per cent. Determine the following for each of the financing policies: (a) rate of return on shareholders' equity, (b) net working capital position, and (c) current ratio. Also, evaluate the return-risk trade offs of these policies