9.2.1 Lecture_18_Solutions_2009

# 9.2.1 Lecture_18_Solutions_2009 - 1 Problem 1 Problem 1...

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Unformatted text preview: 1 Problem 1: Problem 1: Chip Ltd’s choice of CA Policies Chip Ltd’s choice of CA Policies Scenario A B C Receivables 100 150 200 Inventory 100 150 200 CA = 200 300 400 NFA 400 400 400 TA = 600 700 800 Sales 1000 1000 1000 M 0.05 0.05 0.05 E 500 500 500 Identify each policy and calculate the TATO, ROA and ROE for each. 2 Solution 1 Solution 1 Policy A is aggressive Policy A is aggressive • CA is minimised CA is minimised Policy B is asset-matching Policy B is asset-matching • CA is middle-of-road CA is middle-of-road Policy C is conservative or “relaxed” Policy C is conservative or “relaxed” • CA is safely large CA is safely large 1,000 1,000 1,000 1.67 ; 1.43 ; 1.25 600 700 800 A B C S TATO TA TATO TATO TATO = = ≈ × = ≈ × = ≈ × 3 Solution 1 continued Solution 1 continued ( 29 50 50 50 8.33% ; 7.14% ; 6.25% 600 700 800 50 10% 500 : 0.05 3 2 3 A B C NPAT ROA TA ROA ROA ROA NPAT ROE for all policies...
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