uppose a firm follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed policy. The firm's annual sales are €300,000; its fixed assets are €100,000; its target capital structure calls for 50% debt and 50% equity; its EBIT is €35,000; the interest rate on its debt is 10%; and its tax rate is 35%. With a restricted policy, current assets will be 10% of sales, while under a relaxed policy they will be 20% of sales. What is the difference in the projected ROEs between the restricted and relaxed policies?
uppose a firm follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed policy. The firm's annual sales are €300,000; its fixed assets are €100,000; its target capital structure calls for 50% debt and 50% equity; its EBIT is €35,000; the interest rate on its debt is 10%; and its tax rate is 35%. With a restricted policy, current assets will be 10% of sales, while under a relaxed policy they will be 20% of sales. What is the difference in the projected ROEs between the restricted and relaxed policies?
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 11P
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uppose a firm follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed policy. The firm's annual sales are €300,000; its fixed assets are €100,000; its target capital structure calls for 50% debt and 50% equity; its EBIT is €35,000; the interest rate on its debt is 10%; and its tax rate is 35%. With a restricted policy, current assets will be 10% of sales, while under a relaxed policy they will be 20% of sales. What is the difference in the projected
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