Mathematics, 29.01.2021 01:00, littlemoneyh
Cisco Systems wishes to analyze the joint impact of its working capital investment and financing policies on shareholder return. The company has $24 million in fixed assets. Cisco wishes to maintain a debt ratio of 40%. The company's tax rate is also 40%. The following information was developed for the two policies under consideration (dollars in millions):
Aggressive
Conservative
Investment in current assets
$28
$34
Amount of short term debt
$16
$10
EBIT
$5.4
$5.8
Interest rate–LTD (%)
12.0
11.0
Interest rate–STD (%)
7.5
7.0
For the aggressive approach, Cisco's ROE is __ and for the conservative approach the ROE is __.
a. 4.18%; 3.77%
b. 11.62%; 10.48%
c. 6.97%; 6.29%
d. None of these are correct
Answers: 3
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