Hardwig Inc. is considering whether to pursue a restricted or relaxed current asset investment policy. The firm's annual sales are expected to total $3,600,000, its fixed assets turnover ratio equals 4.0, and its debt and common equity are each 50% of total assets. EBIT is $150,000, the interest rate on the firm's debt is 10%, and the tax rate is 40%. If the company follows a restricted policy, its total assets turnover will be 2.5. Under a relaxed policy its total assets turnover will be 2.2.

If the firm adopts a restricted policy, how much lower would its interest expense be than under the relaxed policy?

	a.	$9,818
	b.	$8,418
	c.	$10,309
	d.	$8,861
	e.	$9,327

What are the expected ROEs under the restricted and relaxed policies, respectively?

	a.	8.3% and 10.8%, respectively.
	b.	5.0% and 6.5%, respectively.
	c.	6.5% and 5.0%, respectively.
	d.	7.6% and 8.8%, respectively.
	e.	10.8% and 8.3%, respectively.