The questions (a) through (g) refer to Five Star Manufacturing Company. Use the following information to solve for (a) and (b). Five Star Manufacturing Company Statement of Financial Position As of December 31, 20X4 P 200,000 300,000 P 500,000 Cash Marketable securities Accounts receivable Inventory Total current assets Net fixed assets Total assets 20,000 Current Liabilities (10%) 30,000 Long-term liabilities (15%) 5.0 150,000 Total liabilities 200,000 P 400,000 Stockholders' equity 600,000 Total Liabilities and P1.000,000 Owners' equity P 500,000 P1,000,000 During 20X4, the firm's earnings before interest and taxes were 20 percent of P800,000 in sales. The income tax rate is 34 percent. Required: Determine the level of working capital, net working capital and current ratio. a. b. Calculate the return on equity (net income/stockholders' equity). Use the foll Use the following information about Five Star Manufacturing Company to solve for (c) and (d). Five Star Manufacturing Company decides to examine its working capital policy. In addition to its current strategy of maintaining current assets at 50 percent of sales, Five Star is considering two other strategies based on current assets at 30 or 70 percent of next year's sales. Projected net sales and fixed assets for next year are P1,000,000 and P600,000, respectively. Five Star plans to maintain its existing capital structure of 50 percent debt and 50 percent equity. Current liabilities are to be 40 percent of projected total liabilities. Required: c. Calculate Five Star's net working capital and current ratio under each of the three strategies. d. Explain what effect these strategies would have on five Star's liquidity. Refer Company to solve for (e) and (f). and the following information about Five Star Manufacturing licies and Management 273 Five Star expects its earnings before interest and taxes in 20X5 to be 18 percent of o1 000,000 in sales. Interest rates are projected to remain at 10 percent for shore n debt and 15 percent for long-term debt. The firm's tax rate will be 34 percent. term Required: What is Five Star's rate of return on equity for each of the three strategies? f. Describe the relationship between Five Star's liquidity and profitabiny. e. Use the following informati Five Star Manufacturing Company Pro Forma Statement of Financial Position As of December 31, 20X5 Financing Mix Strategies Compromise P300,000 600,000 P900.000 Restricted Flexible Current assets Fixed assets P300,000 600,000 P900.000 P300,000 600,000 P900.000 Total assets P450,000 Current liabilities (10%) Long-term liabilities (15%) Total liabilities Stockholders' equity Total liabilities and Owners' equity P100,000 350,000 P450,000 450,000 P300,000 150,000 P450,000 450,000 P450,000 450,000 P900.000 P900,000 P900,000 Required: g. Show the expected return on equity, net working capital and current ratio for each proposed strategy.