The following corporation has a moderate current asset investment policy, but it is now considering a...

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The following corporation has a moderate current assetinvestment policy, but it is now considering a change, perhaps to arestricted or maybe to a relaxed policy. The firm’s annual salesare $400,000; its fixed assets are $100,000; its target capitalstructure calls for 50% debt and 50% equity; its EBIT is $39,000;the interest rate on its debt is 10%; and its tax rate is 40%. Witha restricted policy, current assets will be 15% of sales, whileunder a relaxed policy they will be 25% of sales. What is thedifference in the projected ROEs (calculate) between the restrictedand relaxed policies?

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The following corporation has a moderate current assetinvestment policy, but it is now considering a change, perhaps to arestricted or maybe to a relaxed policy. The firm’s annual salesare $400,000; its fixed assets are $100,000; its target capitalstructure calls for 50% debt and 50% equity; its EBIT is $39,000;the interest rate on its debt is 10%; and its tax rate is 40%. Witha restricted policy, current assets will be 15% of sales, whileunder a relaxed policy they will be 25% of sales. What is thedifference in the projected ROEs (calculate) between the restrictedand relaxed policies?