Wilson Electric Company, a manufacturer of various types of electrical equipment, is examining its working capital investment
Question:
Wilson Electric Company, a manufacturer of various types of electrical equipment, is examining its working capital investment policy for next year. Projected fixed assets and current liabilities are $20 million and $18 million, respectively. Sales and EBIT are partially a function of the company's investment in working capital'particularly its investment in inventories and receivables. Wilson is considering the following three different working capital investment policies:
a. Determine the following for each of the working capital investment policies:
i. Rate of return on total assets (that is, EBIT/total assets)
ii. Net working capital position
iii. Current ratio
b. Describe the profitability versus risk trade-offs of these threepolicies.
Investment in Working Capital Investment Policy Aggressive (small investment Current Assets Projected Sales EBIT (in Millions in Mllons n Millions of Dollars)of Dollars) of Dollars) $59 in current assets) in current assets) in current assets) $28 30 32 $5.9 6.0 6.1 Moderate (moderate investment 60 Conservative (large investment 61
Step by Step Answer:
a b Expected profitability rate of return on total assets and risk as measur...View the full answer
Contemporary Financial Management
ISBN: 9780324289114
10th Edition
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow
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