The Story line:: Scott Equipment Organization isinvestigating various combinations of short- and long-term debt in financingassets. Assume the organization has decided to employ $30 million in currentassets and $35 million in fixed assets in its operations next year, providedthe level of current assets, anticipated sales, and EBIT for next year are $60million and $6 million, respectively. The organization’s income tax rate is40%. Stockholders’ equity will be used to finance $40 million of assets, withthe remainder financed by short- and long-term debt. The organization isconsidering implementing one of the policies in the diagram.TheProject needed: Writea 1,400-word paper in which you evaluate profitability versus risk trade-offsof these policies. Would you rate them low, medium, or high with respect toprofitability? Would you rate them low, medium, or high with respect to risk? Format your paper consistent with APAguidelines.I have done the first part below Ineed the1400 word paper completed Week 4 – ScottEquipment Organization PaperDeterminethe following for each policy:· Expectedrate of return on stockholders’ equity· Networking capital position· CurrentratioThe expected rate of return onstockholders’ equity fluctuates from 6.89%, 6.81%, and 6.73% for theAggressive, moderate, and conservative policies respectively. The net workingcapital position reflects vast differences from 6 million to 18 million.Finally, the current ratio ranges from 5:4, 5:3, and 5:2 for the Aggressive,moderate, and conservative policies respectively.  Financial Policy    Expected Rate of Return on Stockholders’  Equity    Net Working Capital Position    Current Ratio    Aggressive   (large amount of short-term  debt)     6.89%    6  million    5:4    Moderate   (moderate amount of short-term  debt)     6.81%    12  million    5:3    Conservative  (small amount of short-term  debt)     6.73%    18  million    5:2    Profitability    High    Medium    Low    Risk    Low    Medium    High  Evaluateprofitability versus risk trade-offs of these policies. Would you rate themlow, medium, or high with respect to profitability? Would you rate them low,medium, or high with respect to risk?  The aggressivepolicy is rated high since the return on stockholders’ equity is higher, mediumin moderate, and low in conservative for the same reasoning. The liquidity isless in aggressive and therefore rated as low, more liquidity in moderate andconservative as compared to aggressive. Based upon the EAT and return onequity, the aggressive policy is recommended.




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