Scott Equipment Organizational Paper

IntroductionUsing the following breeding it is the intent of this paper to show the contrastive effects on Return of Equity, Net working ceiling and Current Ratios as they apply to 3 different fiddling-run financing policies. This paper will also address the profitableness and risks trade-offs of each of the 3 financing policies. In order to light upon the sort after data a balance pall and income avowal will be formulated using the pecuniary information provided and certain financial formulas used to obtain the set needed to complete the Balance sheet and Income statement.

pecuniary information and formulasCurrent Assets = 30M, Fixed Assets = 35M, EBIT = 6M, Sales = 60M,Total Liability = equity + sum of debt (Current Liabilities/ short-run debt and Long - term debt65,000,000 = 40,000,000 + 25,000,000 measuring to be divided amongst short and long term debtCurrent Liability = amount of short-term debtLong-term Debt = $25,000,000 ? short-term debtExpected rate of return on stockholders? equity (for each of the utter amount of short-term debt financing policies)Financial insurance In mil.LTD (%)STD (%)Aggressive(large amount of short-term debt) $24,000,0008.55.5BALANCE SHEET = AggressiveC/A$30 C/LX = 24,000,000F/A$35LTDY- 1,000,000EQUITY$40T/A$65T/L$65Income statement Aggressive Financial PolicyEBIT$ 6,000,000InterestSum of C/L shareage and LTD percentage5.5% * C/L = 5.5%* 24,000,000= 13200008.5% * LTD = 8.



5%* 1,000,000= 850001320000 + 85,000 = 1,405,000EBTEBIT - Interest6,000,000 ? 1,405,000 = 4595000Taxes (40%)Tax percent x EBT40% * 4595000= 1838000Net IncomeEBT - Taxes4595000-1838000= $ 2,757,000Equity$ 40,000,000Return on EquityNet income / equityNet income divided by equity =2757000/ 40,000,000 =6.89%= ROEFinancial Policy In mil.LTD (%)STD (%)Moderate(moderate amount of short-term debt) $18,000,0008.05.0BALANCE SHEET = moderateC/A$30 C/LX = 18,000,000F/A$35LTDY- 7,000,000EQUITY$40T/A$65T/L$65Income statement Moderate Financial PolicyEBIT$ 6,000,000InterestSum of C/L percentage and LTD percentage5.0% * C/L = 5.0%* 18,000,000= $900,0008.0% * LTD = 8.0%* 7,000,000= $560,000$900,000 + $560,000 = $1,460,000EBTEBIT - Interest$6,000,000 ? $1,460,000 = $4,540,000Taxes (40%)Tax percent x EBT40% * $4,540,000= $...

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