Kevin Corporation is contemplating the appropriate level of current assets. The

decision to determine the appropriate level of current assets will be based on

return on equity. Kevin is considering two alternatives; current assets would be

$60$ percent of sales or current assets would be $30$ percent of sales. Kevin's sales

are $$200$ million dollars. Kevin expects its EBIT to be $$30,000,000.$ Kevin's

fixed assets total $$80$ million. Kevin has a $70$ percent debt ratio. Kevin pays $12$

percent interest on its debt, and Kevin has a $20$ percent tax rate.

Required:

a$)$ Determine the return on equity for the two policies.

b$)$ Which policy has more risk? Explain.

c$)$ Explain which policy you would choose.