Current Asset Management 6

Current Asset Management 6 - assets EBIT is $36,000 the...

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Old Exam Questions - Current Asset Management Page 6 of 12 Pages 12. Assume that your company’s budgeted monthly sales are constant at $3,000. Forty percent of its customers pay in the first month and take the 2 percent discount. The remaining 60 percent pay in the month following the sale and don’t receive a discount. Your company’s bad debts are very small and are excluded from this analysis. Purchases for next month’s sales are constant each month at $1,500. Other payments for wages, rent, and taxes are constant at $700 per month. Construct a single month’s cash budget with the information given and determine the average cash gain or (loss) during a typical month for your company. A. $776 B. $853 C. $740 D. $812 E. $708 13. Assume that your company is considering whether to pursue a restricted or relaxed current asset investment policy. You may also assume that the firm’s annual sales are $400,000; fixed assets are $100,000; debt and equity are each 50 percent of total
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Unformatted text preview: assets; EBIT is $36,000; the interest rate on the firm’s debt is 10 percent; and the firm’s tax rate is 40 percent. With a restricted policy, current assets will be 15 percent of sales. Under a relaxed policy, current assets will be 25 percent of sales. Given this information, determine the difference in the projected ROEs between the restricted and relaxed policies. Note: You may wish to use the simplified comparative financial statements given below. 15% of Sales 25% of Sales Balance sheet: Restricted Relaxed Current assets _______ _______ Fixed assets _______ _______ Total assets _______ _______ Debt _______ _______ Equity _______ _______ Total liabilities and equity _______ _______ 15% of Sales 25% of Sales Income Statement Restricted Relaxed EBIT _______ _______ Interest (10%) _______ _______ EBT _______ _______ Taxes (40%) _______ _______ Net income _______ _______ A. 7.0% B. 6.2% C. 5.4% D. 4.6% E. 3.8%...
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