This is both, a question and an Answer. However, the answer does not show how numbers were derived. For example, how were 0, 14, and 28 derived for long-term debt? Could you please show how all of the numbers in the answer were calculated? Thank you
Contemporary Financial Management Homework #8 Chap 16 Please show your calculations in an uploaded Excel file. Working capital management Prob 1 - Major Inc. wishes to analyze thejoint impact of its working capital investment and financing policies on shareholder retum 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. Superior wishes to maintain a debt-to-total assets ratio of 50 percent, where debt consists of both short-term and long-termsources. The company's tax rate is 40 percent. The following information was developed for three different policies under consideration: Interest Rate Chap 16 prob. 6 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-TD (%) $ 45.0 $ 118 $ 11.80 Aggressive $ 50.0 9.50% 6.50% $ 39 $ 120 $ 12.0 Moderate $ 65 9% 6% $ 27 $ 122 $ 12.2 Conservative $ 70 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 stockholders'equity ii. Net working capital position iii. Current ratio b. Evaluate the profitability versus risk trade-offs associated with these three policies. Step 1 of 2 A (a) Determine for each of the working capital investment policies (aggressive, moderate and conservative) the (1) rate of return on stockholders' equity, (ii) net working capital position, and (iii) current ratio. Aggressive Moderate Conservative Current Assets (C/A) $56 $60 $64 Fixed Assets (FIA) 40 40 40 Total Assets (TIA) $96 $100 $104 Current Liab. (C/L) (STD) $48 (6.5%) $36 (6%) $24 (5.5%) Long-term Debt (LTD) 0 (9.5%). 14 (9%) 28 (8.5%) Total Liabilities $48 $50 $52 Equity 48 50 52 Total Liab. & Equity $96 $100 $104 Forecasted Sales $118 $120 $122 Expected EBIT $11.80 $12.00 $12.20 Less: Interest STD 3.12 1.12 2.16 1.32 LTD 0 1.26 2.38 3.12 3.42 3.70 Earnings before taxes 8.68 8.58 8.50 Less: Income Taxes (40%) 3.472 3.432 3.40 Earnings After Taxes $5.208 $5.148 $5.10 iii Chapter 16, Problem 6P 1 Bookmark Show all steps: ON Less: Income Taxes (40%) 3.472 1472 3.432 3.432 3.40
