Solve the Financial Problem in the attachment for Scott Equipment Organization and Lewis Enterprises.
Based on the following scenario, complete the calculations below:
Scott Equipment Organization is . Assume that the organization has decided to employ $30 million in current assets, along with $35 million in fixed assets, in its operations next year. Given the level of current assets, anticipated sales and Earnings Before Interest and Taxes (EBIT) for next year are $60 million and $6 million, respectively. The organization's income tax rate is 40%; Stockholders' equity will be used to finance $40 million of its assets, with the remainder being financed by short-term and long-term debt. Scott's is considering implementing one of the following financing policies:
Lewis Enterprises is considering relaxing its
credit standards to increase its currently sagging sales. As a result of the proposed
relaxation, sales are expected to increase by 10% from 10,000 to 11,000 units
during the coming year; the average collection period is expected to increase from
45 to 60 days; and bad debts are expected to increase from 1% to 3% of sales.
The sale price per unit is $40, and the variable cost per unit is $31. The firm's
required return on equal-risk investments is 25%. Evaluate the proposed relaxation,
and make a recommendation to the firm.
Controlled disbursing is defined as an information
product?that is, the bank on which the company's checks are drawn provides
an early-morning notification of the total dollar amount of checks that will
clear the account that day. Based on that notification, the company may then
fund the account for that amount by the close of business that afternoon. How
might controlled disbursing still be viewed as a form of "remote disbursing,"
and therefore be considered unethical?
A financial institution made a $10,000, 1-year discount
loan at 10% interest, requiring a compensating balance equal to 20% of the
face value of the loan. Determine the effective annual rate associated with this
loan. (Note: Assume that the firm currently maintains $0 on deposit in the
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See attached for the answers to the question: ...
Calculations for Scott Equipment Organization & Lewis Enterprises