Question
Buchholz Corporation follows a moderate current asset investment policy, but is now considering a change, perhaps to a restricted or maybe to a relaxed policy.The
Buchholz Corporation follows a moderate current asset investment policy, but 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 debt is 8%; and its tax rate is 25%.With arestricted policy, current assets will be 15% of sales, while under a relaxed policy, current assets will be 25% of sales.What is the difference in the projected ROEs between the restricted and relaxed policies?Enter your answer rounded to two decimal places.Do not enter % in the answer box.For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.
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