Problem 16-13 Current Asset Usage Policy Payne products sales last year were an anemic S3.2 million but with an improved product mix it expects sales growth to be 25% this year, and Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $3 million of fixed assets and intends to keep its debt ratio at its historical eve of 60% Payne's debt interest rate is currently 9% You are to evaluate three different current asset policies: 1) a restricted policy in which current assets are 45% of projected sales, 2 a moderate policy with 50% of sales tied up in current assets, and 3) a relaxed policy requiring current assets of 60% of sales. Earnings be ore interest and taxes is expected to be 13% of sales. Payne's tax rate is 40%. a. What is the expected return on equity under each current asset level? Round your answers to two decimal places. Tight policy Moderate policy Relaxed policy b. In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption? Select- I. Yes, this assumption would probably be valid in a real world situation. A firm's current asset policies have no significant effect on sales. II. No, this assumption would probably not be valid in a real world situation. A firm's current asset policies may have a significant effect on sales. III. The current asset policies followed by the firm mainly influence the level of long-term debt used by the firm. IV. The current asset policies followed by the firm mainly influence the level of fixed assets. V. Sales are controlled only by the degree of marketing effort the firm uses, irrespective of the current asset policies it employs. Why or why not? The input in the box below will not be graded, but may be reviewed and considered by your instructor blank c.How would the overall riskiness of the firm vary under each policy? The input in the box below will not be graded, but may be reviewed and considered by your instructor. blank