FIN 419 Week 4 Individual Assignment Scott Equipment Organization Paper Scott Equipment Organization is investigating various combinations of short- and long-term debt in financing assets. Assume the organization has decided to employ $30 million in current assets and $35 million in fixed assets in its operations next year, provided the level of current assets, anticipated sales, and EBIT for next year are $60 million and $6 million, respectively. The organization?s income tax rate is 40%. Stockholders? equity will be used to finance $40 million of assets, with the remainder financed by short- and long-term debt. The organization is considering implementing one of the policies in the diagram. Amount of Short-Term Debt ? Financial Policy Millions of dollars LTD (%) STD (%) Aggressive (large amount of short-term debt) $20 8.5 5.5 Moderate (moderate amount of short-term debt) $15 8.0 5.0 Conservative (small amount of short-term debt) $10 7.5 4.5 Determine the following for each policy: ?? Expected rate of return on stockholders? equity ?? Net working capital position ?? Current ratio Write a 1,400- to 1,750-word paper in which you evaluate profitability versus risk trade-offs of these policies. Would you rate them low, medium, or high with respect to profitability? Would you rate them low, medium, or high with respect to risk?? ?
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