Current Asset Usage Folicy Poyne Products had $2.4 million in sales reverives in the most recent year and expects sales growth to be 25% this vear. Payne would like to determine the elfect of variaus current assets policies on its financial performance. Payne has $2 millon of fuxed assets and intends to keep its debs rotio at ins historical level of 55%. Payne's debt interest rate is currenty 8%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets ate 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requining current assets of 60% of sales. Earmings before interest and taxes are expected to be 12% of sales. Payne's tax rate is 35%. a. What is the expected return on equity under each currens asset level? Round your answers to two decirnal places. \begin{tabular}{l|l} Tight policy & % \\ Moderate policy & % \\ Relaxed policy & % \end{tabular} b. In this problem, we have-assumed that the level of expected sales is independent of current assat policy, Is this a valid assumptoan? 1. The current asset policies followed by the firm rainly influence the level of long-term debt used by the firm. II. The current asset policies followed by the firm mainly influence the fevel of foxed assets. III. Yes, this assumpton would probably be valid in a real world situation. A firm's current asset policies have no significant effect on sales. IV. Sales are controlled only by the degree of marketing effort the firm uses, irrespective of the current asset policies it employs. V. No, this assumption would probably not be valid in a teal world situation. A firm's current asset policies may have a significant effect on salos. Why or why not? The input in the box below will not be graded, but may be reviewed and consitered by your instructor: c. How would the overall risk of the furm vary under each policy? The input in the box below will not be graded, but may te reviewrd and considered by your instructor