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Wilson Electric Company, a manufacturer of various types of electrical equipment, is examining its working capital investment policy for next year. Projected fixed assets and
Wilson Electric Company, a manufacturer of various types of electrical equipment, is examining its working capital investment policy for next year. Projected fixed assets and current liabilities are $19 million and $17 million, respectively. Sales and EBIT are partially a function of the company's investment in working capital-particularly its investment in inventories and receivables. Wilson is considering the following three different working capital investment policies: a. Determine the following for each of the working capital investment policies: i. Rate of return on total assets (that is, EBIT/total assets). Round your answers to two decimal places. Rate of return on total assets (Aggressive policy): % Rate of return on total assets (Moderate policy): % Rate of return on total assets (Conservative policy): % ii. Net working capital position. Enter your answers in millions. For example, an answer of $1 million should be entered as 1 , not 1,000,000. Round your answers to the nearest whole number. Net working capital (Aggressive policy): \$ million Net working capital (Moderate policy): \$ million Net working capital (Conservative policy): \$ million iii. Current ratio. Round your answers to two decimal places. Current ratio (Aggressive policy): Current ratio (Moderate policy): Current ratio (Conservative policy): b. Describe the profitability versus risk trade-offs of these three policies. Expected profitability (rate of return on total assets) and risk (as measured by net working capital position or current ratio) are lowest under and highest under
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