The Calgary Company is attempting to establish a current assets policy. Fixed assets are Tk. 6,00,000 and the firm plans to maintain a 40% debt to assets ratio. The interest rate is 10% on all debt. Three alternative current asset policies are under considerations: 40, 50 and 60 percent of projected sales. The company expects to earn 10% before interest and taxes on sales of Tk. 3 million. Calgary`s effective tax rate is 40 percent. What is the expected return on equity under each alternative?

The Calgary Company is attempting to establish a current assets policy. Fixed assets are Tk. 6,00,000 and the firm plans to maintain a 40% debt to assets ratio. The interest rate is 10% on all debt. Three alternative current asset policies are under considerations: 40, 50 and 60 percent of projected sales. The company expects to earn 10% before interest and taxes on sales of Tk. 3 million. Calgary`s effective tax rate is 40 percent. What is the expected return on equity under each alternative?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 20P

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