a. Zerog Corp. had EBIT of $450 million in 2001. It had interest expense of $30 million and a tax rate of 40%. Balance sheet data are given below in millions of dollars.

2000 2001

Cash 50 60

A/R 150 180

Inventories 300 360

Total CA 500 600

Net FA 1000 1200

Total assets 1500 1800

A/P and accruals 100 120

Debt 300 350

Common stock 600 600

Retained Earnings 500 730

Total Liab.& Equity 1500 1800

What is the FCF for the year 2001?

b) Roland & Company has a new management team that has developed an operating plan to improve upon last year's ROE. The new plan would place the debt/TA ratio at 55 percent which will result in interest charges of $7,000 per year. EBIT is projected to be $25,000 on sales of $270,000, and it expects to have a total assets turnover ratio of 3.0. The average tax rate will be 40 percent. What does Roland expect return on equity to be following the changes?