Explore BrainMass

Explore BrainMass

    Rate of return, working capital, current ratio

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Please review the attachment for the complete problem description.

    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).

    © BrainMass Inc. brainmass.com October 10, 2019, 3:53 am ad1c9bdddf


    Solution Preview

    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: ...

    Solution Summary

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