5. Problem 16,08 (Current Assets Investment Policy) Rentz Corporation is investigating the optimal level of current assets for the coming year, Management expects sales to increase to approximately s4 mililas as a result of en asset expansion presently being undertaken, Fixed assets total $1 mililon, and the fiem plans to maintain a 40% debe-to-ossets ratio. Rentz's interest rate is currently 10% on both short-term and long-term debt (which the firm uses in its permanent structure). Three aiternatived regarding the projected current assets level are under consideration: (1) a restricted policy where current assets would be only 45 is of projected sales, (2) a mederate polcy where current assets would be 50% of sales, and ( 3 ) a ralaxed policy where current assets would be 600 bo sales. Earnings before Interest and taxes should be 13W of total sales, and the federal-plus-state tax rate is 25%. a. What is the expected return on equity under esch current assets level? Round your answars to two decimal places. Restricted pollicy: Moderate pelcyi. Reaxed polley: b. In this problem, we asbume that expected sales are independent of the current assets investment policy, is this a valid assumption? 1. Yes. this ausumption would probably be valid in a real-world situation. A firm's current asset policies have no significant affect an sales. If. Yes, sales are controlied only by the degree of marketing effort the firm uses, Irrespective of the current asset policies it employs. I1t. Yes, the current assef policies folowed by the firm nainiy influence the level of longitarm debt used by the firm. N Yes, the current asset policies folowed by the firm mainly influance the level of fixed asseta. Q. No, this assumption would probably not be valid in a real-worid situation, A firm's current asset policies may have a significant affect on soles