moderale curent asset inveatment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed policy The firm's annual sales e S400,000 fixed sets are S100,000, its target capital structure calls for 50% debt and 50% equity, its EBIT is 535,000, the interest rate on is debt is 10 and is tax rate is 40 With a restricted policy, eurrent aet will be 20 of sales, while under arelaned policy they will be M0% of sales. What is the difference in the projeted ROE between the restricted and relased policies? a. 3.25% D.5.18% C.4.24% d.3.73%

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Buchholz Corporation follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed poliey. The firm's annual sales ae $400,000, i fixed
asets are S100,000; its target capital structure calls for 50% debt and 50% equity; its EBIT is 535,000, the interest rate on its debt is 10 and its tax rate is 40% With a restricted policy, ourrent aseta will be
20 of sales, while under a relaxed policy they will be 30% of sales. What is the difference in the projected ROE between the restricted and relased policies?
a.3.25%
D. 5. I%
C.4.24%
d. 3.73%
Transcribed Image Text:Buchholz Corporation follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed poliey. The firm's annual sales ae $400,000, i fixed asets are S100,000; its target capital structure calls for 50% debt and 50% equity; its EBIT is 535,000, the interest rate on its debt is 10 and its tax rate is 40% With a restricted policy, ourrent aseta will be 20 of sales, while under a relaxed policy they will be 30% of sales. What is the difference in the projected ROE between the restricted and relased policies? a.3.25% D. 5. I% C.4.24% d. 3.73%
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