1. Buchholz Corporation follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed policy. The firm's annual sales are $400,000; its fixed assets are $100,000; its target capital structure calls for 50% debt and 50% equity; its EBIT is $35,000; the interest rate on its debt is 10%; and its tax rate is 40%. With a restricted policy, current assets will be 15% of sales, while under a relaxed policy they will be 30% of sales. What is the difference in the projected ROEs between the restricted and relaxed policies?

   	a.	3.25%
   	b.	5.18%
   	c.	3.73%
   	d.	4.24%