Strus Corporation is considering whether to pursue an aggressive or conservative current asset policy, as well as an aggressive or conservative financing policy. The following information is available:

Annual sales are $50,000,000.

Fixed assets are $20,000,000.

The debt ratio is 60 percent.

EBIT is $4,000,000.

Tax rate is 20 percent.

With an aggressive policy, current assets will be 25 percent of sales; with a conservative policy, current assets will be 60 percent of sales.

With an aggressive financing policy, short-term debt will be 70 percent of the total debt; with a conservative financing policy, short-term debt will be 20 percent of the total debt.

Interest rate for short-term debt is 6 percent. Interest rate for long-term debt is 12 percent.

Required:

Determine the return on equity for the aggressive approach and for the conservative approach.

Discuss which approach you would choose.