60% of sales. Earnings before interest and taxes should be 14% of total sales, and the federal-plus-state tax rate is 40%. a. What is the expected return on equity under each current assets level? Round your answers to two decimal places. Restricted policy % Moderate policy % Relaxed policy % b. In this problem, we assume that expected sales are independent of the current assets investment policy. Is this a valid assumption? I. Yes, this assumption would probably be valid in a real world situation. A firm's current asset policies have no significant effect on sales. II. Yes, sales are controlled only by the degree of marketing effort the firm uses, irrespective of the current asset policies it employs. III. Yes, the current asset policies followed by the firm mainly influence the level of long-term debt used by the firm. IV. Yes, the current asset policies followed by the firm mainly influence the level of fixed assets. V. No, this assumption would probably not be valid in a real world situation. A firm's current asset policies may have a significant effect on sales
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