a. Construct a conservative financing plan with 80% of assets financed by long term sources. If McKinnley earnings before interest and taxes are $6,000,000 what will their net income be?
b. An alternative and more aggressive plan would be to finance 60% of total assets with long term financing. Assuming that EBIT was again $6,000,000what will net income be under this alternative?
c. If interest rates were expected to increase, which plan would you recommend ? Why??
Relevant cost information includes:
Warehouse space: $2.50/ unit
Material Handling Expense $1.50/ unit
Insurance Premium $1.00/unit
Total ordering cost $100.00/ per order
a. What is the economic order quantity?
b. What is the amount of average inventory?
c. How many orders will be made per year?
d. What is the total cost of this inventory decision?
a. What return on investment would Acme have to earn in order to justify retaining 2001’s earnings ? Use the formula Ke-D1/P0 + g
b. What changes would occur in the statement of net worth if a $.25 cash dividend was paid? If a 5% stock dividend was given and no cash was paid?
c. What would EPS be before and after the stock dividend?