Unformatted text preview: assets; EBIT is $36,000; the interest rate on the firm’s debt is 10 percent; and the firm’s tax rate is 40 percent. With a restricted policy, current assets will be 15 percent of sales. Under a relaxed policy, current assets will be 25 percent of sales. Given this information, determine the difference in the projected ROEs between the restricted and relaxed policies. Note: You may wish to use the simplified comparative financial statements given below. 15% of Sales 25% of Sales Balance sheet: Restricted Relaxed Current assets _______ _______ Fixed assets _______ _______ Total assets _______ _______ Debt _______ _______ Equity _______ _______ Total liabilities and equity _______ _______ 15% of Sales 25% of Sales Income Statement Restricted Relaxed EBIT _______ _______ Interest (10%) _______ _______ EBT _______ _______ Taxes (40%) _______ _______ Net income _______ _______ A. 7.0% B. 6.2% C. 5.4% D. 4.6% E. 3.8%...
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 Spring '08
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