Determine the return on equity for the two policies

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Reference no: EM133261372

Assignment:

Soler Corporation is contemplating the appropriate level of current assets. The decision to determine the appropriate level of current assets will be based on return on equity. Soler is considering two alternatives; current assets would be 50 percent of sales or current assets would be 20 percent of sales. Soler's sales are $100 million dollars. Soler expects its EBIT to be $15,000,000. Soler's fixed assets total $50 million. Soler has a 60 percent debt ratio. Soler pays 15 percent interest on its debt and Soler has a 25 percent tax rate.

Required:

a) Determine the return on equity for the two policies.

b) Which policy has more risk? Explain.

C) Explain which policy you would chose.

Reference no: EM133261372

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