Prob 1 - Major Inc. wishes to analyze the joint impact of its working capital investment and financing policies on shareholder return and risk. The company has $40 million in fixed assets. Also, the firm's financial structure consists of short-term and long-term debt and common equity. Major wishes to maintain a debt-to-total assets ratio of 50 percent, where debt consists of both short-term and long-term sources. The company's tax rate is 40 percent. The following information was developed for three different policies under consideration:

Chap 16 prob. 6									Interest Rate
Working Capital Investment and Financing Policy	Investment in Current Assets (in Millions of Dollars)		Amount of S-T Debt (in Millions of Dollars)		Projecte d Sales (in Millions of Dollars)		EBIT (in Millions of Dollars)		LTD S-T D (%) (%)

Aggressive		$ 50.0		$ 45.0			$ 118	$ 11.80		9.50%	6.50%
Moderate		$ 65		$ 39			$ 120	$ 12.0		9%	6%
Conservative		$ 70		$ 27			$ 122	$ 12.2		8.50%	5.50%

a. Determine the following for each of the three working capital investment and financing policies:

i. Expected rate of return on stock holders' equity

ii. Net working capital position iii. Current ratio

b. Evaluate the profitability versus risk trade-offs associated with these three policies.