User Account

All Pages

What is the expected return on equity

Assignment Help Finance Basics
Reference no: EM131106300

Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $2 million as a result of an asset expansion presently being undertaken. Fixed assets total $1 million, and the firm plans to maintain a 60% debt ratio. Rentz's interest rate is currently 8% on both short-term and longer-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current asset level are under consideration: (1) a tight policy where current assets would be only 45% of projected sales, (2) a moderate policy where current assets would be 50% of sales, and (3) a relaxed policy where current assets would be 60% of sales. Earnings before interest and taxes should be 12% of total sales, and the federal-plus-state tax rate is 40%.
a. What is the expected return on equity under each current asset level?
b. In this problem, we assume that expected sales are independent of the current asset policy. Is this a valid assumption? Why or why not?
c. How would the firm's risk be affected by the different policies?

Reference no: EM131106300

Questions Cloud

What steps would you take to implement the given solution : Your employer, Terapin Technologies, a Microsoft-certified solutions provider, has been approached by a local company requesting help them with a project. What steps would you take to implement this solution for the company? Be very specific.
What amount of the foregoing revenues should be accounted : What amount of the foregoing revenues should be accounted for in Ariba's government all type funds?
A printing shop receives an average of one order per day : A printing shop receives an average of one order per day. The average length of time required to complete an order is half a day. At any given time, the print shop can work on at most one job. Interarrival times and service times are exponentially..
Elements of assignment : Write a persuasive essay either supporting or denying the veracity of the theme statement; The argument should include a discussion of the differences between corporate social responsibility and the triple bottom line concepts.
What is the expected return on equity : Earnings before interest and taxes should be 12% of total sales, and the federal-plus-state tax rate is 40%.a. What is the expected return on equity under each current asset level? b. In this problem, we assume that expected sales are independent of ..
What amount should be reported as grant revenues : In connection with the grants for the purchase of school buses and bus maintenance, what amount should be reported as grant revenues for the year ending June 30, 2011, when using modified accrual accounting?
How much property tax revenue should be reported : How much property tax revenue should be reported by the general fund on the statement of revenues, expenditures, and changes in fund balances prepared for the year ended December 31, 2011?
Assume that interarrival and service times : Ships arrive at a port facility at an average rate of two ships every three days. On average, it takes a single crew one day to unload a ship. Assume that interarrival and service times are exponential.
Calculate christie''s cash conversion cycle : . Christie's payables deferral period is 40 days. a. Calculate Christie's cash conversion cycle. b. Assuming Christie holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA.

Reviews

Write a Review

Finance Basics Questions & Answers

  What is the price of the bonds

Will the bonds be selling at a premium or a discount with respect to their $1000 face value? Why and what is the price of the bonds?

  What would its future value be

What's the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If this was an annuity due, what would its future value be?

  What will be its per-share dividend in 2009

The company had a 40% dividend payout ratio in 2008. If Bowles wants to maintain this payout ratio in 2009, what will be its per-share dividend in 2009?

  Calculate and graph the money growth rate

As a junior financial analyst in a brokerage firm, you have been asked by your boss to show the usefulness of the World Wide Web as a convenient resource for financial research.

  What amount of gain or loss does edie recognize if the

Shauna and Danielle decided to liquidate their jointly owned corporation, Woodward Fashions, Inc. (WFI).  After liquidating its remaining inventory and paying off its remaining liabilities, WFI had the following tax accounting balance sheet.

  Strict residual dividend policy

Red Zeppelin Corporation follows a strict residual dividend policy. Its debt-equity ratio is 2.5. a. If earnings for the year are $190,000, what is the maximum amount of capital spending possible with no new equity?

  Why is it necessary to monitor and control strategic plans

b1.nbsp why is it necessary to monitor and control strategic plans? who should be responsible for monitoring and

  An investment offers a 11 percent total return over the

an investment offers a 11 percent total return over the coming year. bill bernanke thinks the total real return on this

  Stock between the fundamentals

Finally, describe the difference in this stock between the fundamentals that you chose and the technical's of the trends that exist. Do they correlate and what did you learn from this exercise.

  Evaluate student''s understanding of grammatical operations

Objective: To evaluate student's understanding of grammatical operations and topic sentences recognition ability which makes him/her good English language reader.

  Explain the meaning of an insurable interest

a. Explain the meaning of an insurable interest.

  Find the amount for amortization expense

At the starting of 2006, Findlay Company received a three-year zero-interest-bearing $1,000 trade note. The market rate for equivalent notes was 8 percent at that time

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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