Scott Equipment Organization Memo
To: Scott Equipment Organization Management Team
From:
Date:
RE: Financing Options
Scott Equipment Organization anticipates current assets to be around $66 million. The income tax rate for Scott Equipment is 40%, which would make the projected tax amount for next year around $26.4 million. The organization has three options available to when implementing their financial policies. The aggressive financial policy has a large amount of short-term debt, moderate policy utilizes a moderate amount of short-term debt, and the conservative option uses a small amount of short-term debt. Each financial policy has their own benefits, but it the best decision is based on the current and expected position of the company’s financials is. The expected rate of return on the stockholder’s equity is .99%. Based on the level of an aggressive financial policy the net working capital position would be at $42.50 million and the current ratio would be at 2.81. According to the moderate financial policy the net working capital position would be at $49 million and the current ratio would be at 3.88. The conservative financial policy has the net working capital position would be at $55 million and the current ratio would be at 6.00. Based on the aggressive financial policy the net working capital is at its lowest as is the current ratio. The moderate financial policy is a bit higher in both the net working capital and the current ratio. The conservative financial policy is able to offer a higher net working capital but the debt to income ratio is much higher as well. The aggressive financial policy is a higher risk for the organization and does not offer as high of a net working capital as the conservative financial policy. However, there is a lower ratio when it comes to the organizations debt. The moderate financial policy is medium in both