Antivirus, Inc., expects its sales next year to be $4,400,000. Inventory and accounts receivable will increase by $670,000 to accommodate this sales level. The company has a steady profit margin of 20 percent with a 40 percent dividend payout.
How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing. (Omit the “$” sign in your response.)
External funds needed
$
5.Problem 6-10 Optimal policy mix [LO5]
Assume that Hogan Surgical Instruments Co. has $3,000,000 in assets. If it goes with a low-liquidity plan for the assets, it can earn a return of 18 percent, but with a high-liquidity plan, the return will be 14 percent. If the firm goes with a short-term financing plan, the financing costs on the $3,000,000 will be 10 percent, and with a long-term financing plan, the financing costs on the $3,000,000 will be 12 percent.
(a)
Compute the anticipated return after financing costs with the most aggressive asset-financing mix.(Omit the “$” sign in your response.)
Anticipated return
(b)
Compute the anticipated return after financing costs with the most conservative asset-financing mix.(Omit the “$” sign in your response.)
Anticipated return
(c)
Compute the anticipated return after financing costs with the two moderate approaches to the asset-financing mix.(Omit the “$” sign in your response.)
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