McPherson's Corporation is attempting to determine the optimal level of current assets for the coming year. Management expects sales to increase to approximately $3 million as a result of an asset expansion presently being undertaken. Fixed assets total $ 1 million, and the firm wants to maintain a 40 percent equity ratio. McPherson's interest cost is currently 6% on both short-term and long-term debt (which the firm uses as its permanent structure). Three alternatives regarding the projected current assets level are available to the firm: i. A tight policy requiring current assets of only 45% of projected sales; II. A moderate policy of 50 percent of sales in current assets, and ill. A relaxed policy requiring current assets of 60 percent of sales. The firm expects to generate earnings before interest and taxes at a rate of 12 percent of total sales. Required: a. What is the expected retum on equity under each current assets levels (assume a 40 percent effective federal tax rate). (12 marks)