Cisco Systems Wishes to Analyze the Joint Impact of Its

question 73

Multiple Choice

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) : $$\begin{array} { l l l } & \text { Aggressive } & \text { Conservative } \\\text { Investment in current assets } & \$ 28 & \$ 34 \\\text { Amount of short term debt } & \$ 16 & \$ 10 \\\text { EBIT } & \$ 5.4 & \$ 5.8 \\\text { Interest rate-LTD } ( \% ) & 12.0 & 11.0 \\\text { Interest rate-STD } ( \% ) & 7.5 & 7.0\end{array}$$ ? 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

---

Definitions:

Team Norm

Behavioral expectations and standards that are established and shared among team members, guiding their interactions and work.

Verbal Aggression

The act of using spoken words to harm or attack someone either emotionally or psychologically.

High-performance Orientation

An organizational or team focus on achieving high levels of performance and excellence, often through setting challenging goals and standards.

Favorable Judgments

Positive evaluations or opinions formed about something or someone based on evidence and reasoning.