Problem 3 (sample calculator)

a. Policy A Policy B
Current Assets 65%*Sales 45%*Sales
Long-Term Debt 60%*Total Debt 30%*Total Debt
Short-Term Debt 40%*Total Debt 70%*Total Debt
Total Debt 60%*Total Assets 60%*Total Assets
Equity 40%*Total Assets 40%*Total Assets
EBIT 15%%*Sales 15%%*Sales
Inc. Taxes 40%*EBT 40%*EBT
Interest (S) 10%*STD 10%*STD
Interest (L) 12%*LTD 12%*LTD
Forecasted Sales 24,000,000 24,000,000
Fixed Assets 11,000,000 11,000,000

Policy A Policy B
Current Assets 15,600,000 9,600,000
Total Assets 26,600,000 20,600,000
Total Equity 10,640,000 8,240,000
Total Debt 15,960,000 12,360,000
Short-Term Debt 6,384,000 8,652,000
Long-Term Debt 9,576,000 3,708,000
EBIT 3,600,000 3,600,000
Interest
Short 638,400 865,200
Long 1,149,120 444,960
Total 1,787,520 1,310,160
EBT(EBIT-Interest) 1,812,480 2,289,840
Less: Taxes 724,992 915,936
EAT 1,087,488 1,373,904
Rate of Return
(EAT/Tot.Equity) 0.1022 0.1667
10.22 16.67
Net Working Capital
(Cur. Assets-STD) 9,216,000 948,000
Current Ratio
(Cur. Assets/STD) 2.44 1.11
Data:
Policy A Policy B
CA/Sales 65% 40%
STD/Tot. Debt 40% 70%
LTD/Tot. Debt 60% 30%

Forecastes Sales
24,000,000
EBIT (% of Sales)
15%
Tax Rate Data:
40%
Fixed Total Assets Policy A Policy B
11,000,000 50% 45%
Debt 45% 50%
60%
Equity
40%
Interest Rate (S)
10%
Interest rate (L)
12%