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Rate of return, working capital, current ratio

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Reynolds Equipment financing policies: rate of return, working capital, current ratio

Reynolds Equipment Company is investing the use of various combinations of short-term and long-term debt in financing its assets. Assume that the company has decided to employ $30 million in current assets, along with $35 million in fixed assets, in its operations next year. Given that this level of current assets, anticipated sales and EBIT for next year are $60 million and $6 million, respectively. The company's income tax rate is 40 percent. Stockholder's equity will be used to finance $40 million of its assets, with the remainder being financed by short-term and long-term debt. Reynolds is considering implementing one of the following financing policies: ...
(please see the attached file).

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Solution Summary

This solution helps in computing the rate of return, the working capital, and the current ratio for the given company.

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Please check the attached Excel file for format and formulas.

1) Expected rate of return on stockholders' equity

Total funds to be raised from debt= Additional funds requirement in Assets- Equity

Calculate Net profit: ...

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