Explain net income, Operation Management

Assignment Help:

Scott Equipment Organization is investigating various combinations of short- and long-term debt in financing assets. Assume the organization has decided to employ $10 million in current assets and $15 million in fixed assets in its operations next year, and EBIT for next year is $8 million. The organization's income tax rate is 40%. Stockholders' equity will be used to finance $15 million of assets, with the remainder financed by short- and long-term debt. The organization is considering implementing one of the policies below. Current Assets: $10 million Fixed Assets: $15 million Total Assets : $25 million Stockholders' Equity: $15 million Total Amount of Assets to be financed by debt: $10 million Tax Rate: 40% Total EBIT: $8 million Aggressive Strategy Short Term Debt: $8 million, 6% interest rate Long Term Debt: $2 million, 8% interest rate Moderate Strategy Short Term Debt: $5 million, 5.5% interest rate Long Term Debt: $5 million,7.5% interest rate Conservative Strategy Short Term Debt: $3 million, 5.25% interest rate Long Term Debt: $7 million, 7.25% interest rate Determine the following for each policy: • Net Income • Expected rate of return on stockholders' equity (Net Income/Equity) • Net working capital position (Current Assets - Current Liabilities) • Current ratio (Current Assets/Current Liabilities) • Would you rate them low, medium, or high with respect to profitability? • Would you rate them low, medium, or high with respect to risk? • What is your recommendation to management? Why?


Related Discussions:- Explain net income

Explain analysis in determining project risk, Evaluate the use of statistic...

Evaluate the use of statistical analysis in determining project risk and how it might be applied to the human factors of a project

Explain how many items need to be counted each day, Howard Electronics, a s...

Howard Electronics, a small manufacturer of electronic research equipment, has approximately 7,000 items in its inventory and has hired Joan Blasco-Paul to manage its inventory. Jo

Explain comparison of processes with a direct adversary, 1. A simulation mo...

1. A simulation model goes one step further than possible with analysis tools, because it can show how the process performs ____________ over time. 2. A(n) ____________ is a met

Supply chain with demand, Southern Fresh has decided to make a policy that ...

Southern Fresh has decided to make a policy that every product will receive enough shelf space to ensure that 98.75 percent of customers will find that their first choice is availa

A Make or Buy Analysis, A Make or Buy Analysis Managers at Wagner Fabrica...

A Make or Buy Analysis Managers at Wagner Fabricating Company are reviewing the economic feasibility of manufacturing a part that it currently purchases from a supplier. Forecas

Explain testing your business perspective of a typical ie, Page maximum req...

Page maximum required for this question. This is testing your business perspective of a typical IE problem. Given that you have a starting standard time for a job of ninety (90) mi

Define the important feature of collective bargaining, Define the important...

Define the important feature of collective bargaining. The important feature of collective bargaining is give and take.

Explain companies can voluntarily acknowledge a union, Companies can volunt...

Companies can voluntarily acknowledge a union through a card check recognition process if it appears to have 30% support.

Explain what factors have limited the ability of local law, 1. What factors...

1. What factors have limited the ability of local law enforcement agencies to respond to the growing threat of computer crime? Answer A. lack of training B. lack of diagnostic equi

Supply chain strategies, Supply Chain Strategies  In this second secti...

Supply Chain Strategies  In this second section of the chapter we consider:  1. Breadth of supplier base - many or few suppliers?  2. Vertically integrated or virtual or

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd