Click here to read the eBook: Current Assets Investment Policies 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 $3 milion as a result of an asset expansion presently being undertaken. Fixed assets total $2 million, and the plans to maintain a 40% debt to assets atio Rentz s interest rate is current y 9% on both short-term and ong term debt which the firm uses in its permanent structure Three alternatives regarding the projected current assets eve are under consideration: 1 a restricted policy where current assets would be only 45% of p ected sales 2 a moderate policy where current assets would be 50% o sales and 3 a relaxed policy where current assets would be 60% of sales. Ear ngs before interest and taxes should ba 11% of total sales, and the federal-plus-state tax rate is 40%. a. What is the expected return on equity under each current assets level? Round your answers to two decimal places. Restricted policy Moderate policy Relaxed policy b. In this problem, we assume that expected sales are independent of the current assets investment policy. Is this a valid assumption? I. Yes, the current asset policies followed by the firm mainly influence the level of fixed assets, . No, this assumption would probably not be valid in a real world situation. A firm's current asset policies may have a significant effect on sales. III. Yes, this assumption would probably be valid in a real world stuation. A firms current asset policies have no significant offect on sales. IV. Ves, sales are controlled only by the degree of marketing effort the firm use irrespective of the current asset policies it employs. V. Yes, the current asset policies followed by the firm mainly influence the level of long-term debt used by the firm Select- c. How would the firm's risk be affected by the different policies? The input in the box below will not be graded, but may be reviewed and considered by your instructor