Lily Shipping is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $$4$ million as a result of an asset expansion presently being undertaken. Fixed assets total $$1\mathrm{.}5$ million, and the firm plans to maintain a $60\%$ debt$-$to$-$assets ratio. Lily$$s interest rate is currently $7\%$ on both short$-$ and long$-$term debt $($which the firm uses in its permanent structure$).$ Three alternatives regarding the projected current assets level are under consideration: $(1)$ a restricted policy where current assets would be only $40\%$ of projected sales, $(2)$ a moderate policy where current assets would be $50\%$ of sales, and $(3)$ a relaxed policy where current assets would be $65\%$ of sales. Earnings before interest and taxes should be $12\%$ of total sales, and the federal$-$plus$-$state tax rate is $30\%.$

What is the expected return on equity under the relaxed policy?

Would you expect ROE to go up or down if the company pursues the restricted policy?