Scott Equipment Organization

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Scott Equipment Organization
Jaime Grettenberg
FIN 419
February 25, 2013
Kristine Donnelly

Scott Equipment Organization
Many businesses use debt financing to achieve their financial goals. Debt financing is raising operating capital by borrowing. Scott Equipment Organization is investigating various combinations of short-term and long-term debt financing in financing their assets. Short-term debt financing has a maturity of one year or less; whereas, long-term debt financing has a maturity of more than one year. Short-term debt is usually used to increase the amount of available working capital that can assist the company with its day-to-day operations, such as purchasing a required piece of equipment or to pay suppliers. Long-term debt generally requires a higher interest rate than short-term debt because the lender is taking on a greater risk by loaning money for a longer period of time.

This paper will explore three different financing options for Scott Equipment including aggressive, moderate, and conservative. Calculations will be conducted and compared on the three options to determine the best option for Scott Equipment. Calculations will include the expected rate of return on stockholder’s equity (ROE), networking capital position, and current ratio. Below is a table showing the results of all calculations. Financial Policy | In mil.|  |  |

Current Assets| 30|  |  |
Fixed Assets| 35|  |  |
Total of Assets | 65|  |  |
Equity Financing| 40|  |  |
Debt Financing| 25|  |  |
 | Aggressive| Moderate| Conservative|
Short term Debt| 24| 18| 12|
Long term Debt | 1| 7| 13|
Interest Rate Short term| 5.50%| 5.00%| 4.50%|
Interest Rate Long term| 8.50%| 8.00%| 7.50%|
Sales| 60| 60| 60|
EBIT| 6| 6| 6|
Interest | 1.405| 1.46| 1.515|
EBT| 4.595| 4.54| 4.485|
Tax | 1.838| 1.816| 1.794|
Net Income| 2.757| 2.724| 2.691|
Return on Equity | 6.89%| 6.81%| 6.73%...
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