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Moderate current asset investment policy

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Edwards Enterprises follows a moderate current asset investmentpolicy, but it is now considering a change, perhaps to a restrictedor maybe to a relaxed policy. The firm's annual sales are $400,000;its fixed assets are $100,000; its target capital structure callsfor 50% debt and 50% equity; its EBIT is $39,000; the interest rateon its debt is 10%; and its tax rate is 40%. With a restrictedpolicy, current assets will be 15% of sales, while under a relaxedpolicy they will be 25% of sales. What is the difference in theprojected ROEs between the restricted and relaxed policies?

Reference no: EM131152676

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