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):

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

Question

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) :

For the aggressive approach, Cisco's ROE is and for the conservative approach the ROE is .

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

Quizplus · Accepted Answer

Aggressive Conservative
Total Debt $ 20.800 $23.200
EBIT $ 5.400 $ 5.800
I 1.776 2.152
EBT 3.624 3.648
T 1.450 1.460
EAT $ 2.174 $ 2.188
ROE 6.97% 6.29%

Cisco Systems Wishes to Analyze the Joint Impact of Its