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Margetis Enterprises follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed
Margetis Enterprises follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed policy. The firm's annual sales are $600,000; its fixed assets are $150,000; its target capital structure calls for 50% debt and 50% equity, its EBIT is $52,500; the interest rate on its debt is 10%; and its tax rate is 40%. With a restricted policy, current assets will be 15% of sales, while under a relaxed policy they will be 25% of sales, what is the difference in the projected ROEs between the restricted and relaxed policies? A. 20.25% B. 5.25% C. 15.25% D. 12.25%
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