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Projected roe between the restricted and relaxed policies

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Jarvis Enterprises is considering whether to pursue a restricted or relaxed current asset investment policy. The firm's annual sales are $400,000; its fixed assets are $100,000; debt and equity are each 50% of total assets. EBIT is $36,000, the interest rate on the firm's debt is 10%, and the firm's tax rate is 40%. With a restricted policy, current assets will be 15% of sales. Under a relaxed policy, current assets will be 25% of sales. What is the difference in the projected ROEs between the restricted and relaxed policies?

Reference no: EM132070062

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