ANSWER E and F please.
Extracted text: Refer to (b) and the following information about Five Star Manufacturing Company to solve for (e) and (f). Five Star expects its eamings before interest and taxes in 20x5 to be 18 percent of P1,000,000 in sales. Interest rates are projected to remain at 10 percent for short-term debt and 15 percent for long-term debt. The firm's tax rate will be 34 percent. Required: e. What is Five Star's rate of return on equity for each of the three strategies? f. Describe the relationship between Five Star's liquidity and profitability. Use the following information about Five Star Manufacturing Company to solve for (g). Five Star wants to determine the impact of changing the financing mix when using an aggressive current asset strategy of having current assets at 30 percent of sales. Earnings before interest and taxes are expected to be P180,000. Short-term interest rates are 10 percent and long-term rates are 15 percent. The firm's tax rate is 34 percent. Five Star wants to maintain a mix of 50 percent debt and 50 percent equity under restricted, compromise and flexible financing strategies as shown below. Five Star Manufacturing Company Statement of Financial Position As of December 31, 20X5 Financing Mix Strategies Compromise P 300,000 600,000 P 900.000 Restricted Flexible Current assets Fixed assets Total assets P 300,000 600,000 P 900.000 P 300,000 600.000 P 900.000 P 100,000 350.000 450,000 450,000 P 900.000 P 300,000 150,000 450,000 450,000 P900.000 P 450,000 Current liabilities (10%) Long-term liabilities (15%) Total liabilities Stockholders' equity Total liabilities and Owners' equity 450,000 450.000 P 900.000 Required: g. Show the expected return on equity, net working capital and current ratio for each proposed strategy.
Extracted text: Problem 5 (Working Capital) The questions (a) through (g) refer to Five Star Manufacturing Company. Use the following information to solve for (a) and (b). Five Star Manufacturing Company Statement of Financial Position As of December 31, 20X4 P 20,000 Current Liabilities (10%) 30,000 Long-term liabilities (15%) 150,000 Total liabilities 200.000 P 400,000 Stockholders' equity 600.000 Total Liabilities & Owners' equity P1.000.000 Cash Marketable securities P 200,000 300.000 P 500,000 Accounts receivable Inventory Total current assets P 500,000 Net fixed assets Total assets P1.000.000 During 20X4, the firm's earnings before interest and taxes were 20 percent of P800,000 in sales. The income tax rate is 34 percent. Required: a. Determine the level of working capital, net working capital and current ratio. b. Calculate the return on equity (net income/stockholders'). Use the following information ebout Five Ster Manufacturing Company to solve for (c) and (d). Five Star Manufacturing Company decides to examine its working capital policy. In addition to its current strategy of maintaining current assets at 50 percent of sales, Five Star is considering two other strategies based on current assets at 30 or 70 percent of next year's sales. Projected net sales and fixed assets for next year are P1,000,000 and P600,000, respectively. Five Star plans to maintain its existing capital structure of 50 percent debt and 50 percent equity. Current liabilities are to be 40 percent of projected total liabilities. Required: c. Calculate Five Star's net working capital and current ratio under each of the three strategies. d. Explain what effect these strategies would have on Five Star's liquidity.