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Zorn Corporation is deciding whether to...
This question was answered on May 11, 2011. View the Answer
Zorn Corporation is deciding whether to pursue a restricted or relaxed current asset investment policy. The firm's annual sales are expected to total $3,600,000, its fixed assets turnover ratio equals 4.0, and its debt and common equity are each 50% of total assets. EBIT is $150,000, the interest rate on the firm's debt is 10%, and the tax rate is 40%. If the company follows a restricted policy, its total assets turnover will be 2.5. Under a relaxed policy its total assets turnover will be 2.2.

If the firm adopts a restricted policy, how much lower would its interest expense be than under the relaxed policy?
a. $ 8,418 b. $ 8,861 c. $ 9,327 d. $ 9,818 22
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Zorn Corporation is deciding whether to pursue a restricted or relaxed current asset investment
policy. The firm's annual sales are expected to total $3,600,000, its fixed assets turnover ratio...

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