Consider the comprehensive example involving Burlington Resources (Table 16.5). In this example, it was assumed that forecasted sales and expected EBIT, as well as the interest rates on short-term and long-term debt, were independent of the firm's working capital investment and financing policies. However, these assumptions are not always completely realistic in practice. Sales and EBIT are generally a function of the firm's inventory and receivables policies. Both of these policies, in turn, affect the firm's level of investment in working capital. Likewise, the interest rates on short-term and long-term debt are normally a function of the riskiness of the firm's debt as perceived by lenders and, hence, are affected by the firm's working capital investment and financing decisions. Forecasted Sales (in Millions Expected EBIT (in Millions Policy of Dollars) Aggressive Moderate Conservative $98 99 100 Interest Rate of Dollars) STD LTD (%) (%) $9.8 8.9 9.9 9.9 7.6 8.5 10.0 6.3 7.1 Recompute Burlington's rate of return on common equity under the set of assumptions concerning sales, EBIT, and interest rates for each of the three different working capital investment and financing policies provided in the table above. Round your answers to two decimal places. Aggressive Policy Moderate Conservative Expected Rate of Return on Common Equity % % % Alternative Working Capital Investment and Financing Policies for Burlington Resources (in Millions of Dollars) Aggressive Relatively Small Investment in Current Assets; Relatively Large Amount of Short-Term Debt $ 35 Moderate Moderate Investment in Current Assets; Moderate Amount of Short-Term Debt Conservative Relatively Large Investment in Current Assets; Relatively Small Amount of Short-Term Debt $45 Current assets (C/A) Fixed assets (F/A) Total assets (T/A) Current liabilities (STD) (C/L) (interest rate, 8%) Long-term liabilities (LTD) (interest rate, 10%) Total liabilities (60% of T/A) Common equity Total liabilities and common equity Forecasted sales Expected EBIT Less Interest: STD, 8% LTD, 10% Taxable income Less Taxes (40%) Net income after taxes Expected rate of return on common equity Net working capital position (C/A - C/L) Current ratio (C/A + C/L) 8 2 7: 1.6 2.2 $ 4.0 15.4% 0: 2.4 ;} 0.9 30 $75 $10 35 $45 30 $75 $100 10 0.8 3.5 4.3 $5.7 2.3 $3.4 13.2% 11.3% $35 4.5