Business, 05.06.2020 22:58 terrysizemore666

ABC Limited is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $2 million as a result of an asset expansion presently being undertaken. Fixes assets total $1 million, and the firm plans to maintain a 60% debt-to-assets ratio. ABC Limited’s weighted average interest rate is currently 8% on short- and long-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current assets level are under consideration: (1) a restricted policy where current assets would be only 45% of projected sales, (2) a moderate policy where current assets would be 50% of sales, and (3) a relaxed policy where current assets would be 60% of sales. Earnings before interest and taxes should be 12% of total sales, and the profits tax rate is 40%. What is the expected return on equity under each current asset level? Round your answers to two decimal places. Restricted policy %Moderate policy %Relaxed policy %

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ABC Limited is investigating the optimal level of current assets for the coming year. Management exp...

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