Question

In: Finance

Big Retailer (BR) follows a moderate current asset investment policy, but is now considering a change,...

Big Retailer (BR) follows a moderate current asset investment policy, but is now considering a change, perhaps to a restricted or maybe to a relaxed policy. BR’s annual sales are $1,400,000; its fixed assets are $950,000; its target capital structure calls for 40% debt and 60% equity; its EBIT is $550,000; the interest rate on debt is 8%; and its tax rate is 20%. With a restricted policy, current assets will be 20% of sales, while under a relaxed policy, current assets will be 35% of sales. What is the difference in the projected ROEs between the restricted and relaxed policies? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.

Solutions

Expert Solution

✓ ROE for restricted policy is 55.35%

✓ ROE for relaxed policy is 46.66%

✓ Difference between ROE is 8.69%

PLEASE GIVE UPVOTE

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Big Retailer (BR) follows a moderate current asset investment policy, but is now considering a change,...
Big Retailer (BR) follows a moderate current asset investment policy, but is now considering a change, perhaps to a restricted or maybe to a relaxed policy. BR’s annual sales are $1,400,000; its fixed assets are $950,000; its target capital structure calls for 40% debt and 60% equity; its EBIT is $500,000; the interest rate on debt is 8%; and its tax rate is 20%. With a restricted policy, current assets will be 20% of sales, while under a relaxed policy,...
Big Retailer (BR) follows a moderate current asset investment policy, but is now considering a change,...
Big Retailer (BR) follows a moderate current asset investment policy, but is now considering a change, perhaps to a restricted or maybe to a relaxed policy. BR’s annual sales are $1,400,000; its fixed assets are $950,000; its target capital structure calls for 40% debt and 60% equity; its EBIT is $650,000; the interest rate on debt is 8%; and its tax rate is 20%. With a restricted policy, current assets will be 20% of sales, while under a relaxed policy,...
Big Retailer (BR) follows a moderate current asset investment policy, but is now considering a change,...
Big Retailer (BR) follows a moderate current asset investment policy, but is now considering a change, perhaps to a restricted or maybe to a relaxed policy. BR’s annual sales are $1,400,000; its fixed assets are $950,000; its target capital structure calls for 40% debt and 60% equity; its EBIT is $450,000; the interest rate on debt is 8%; and its tax rate is 20%. With a restricted policy, current assets will be 20% of sales, while under a relaxed policy,...
Big Retailer (BR) follows a moderate current asset investment policy, but is now considering a change,...
Big Retailer (BR) follows a moderate current asset investment policy, but is now considering a change, perhaps to a restricted or maybe to a relaxed policy. BR’s annual sales are $1,400,000; its fixed assets are $950,000; its target capital structure calls for 40% debt and 60% equity; its EBIT is $500,000; the interest rate on debt is 8%; and its tax rate is 20%. With a restricted policy, current assets will be 20% of sales, while under a relaxed policy,...
10 Big Retailer (BR) follows a moderate current asset investment policy, but is now considering a...
10 Big Retailer (BR) follows a moderate current asset investment policy, but is now considering a change, perhaps to a restricted or maybe to a relaxed policy. BR’s annual sales are $1,400,000; its fixed assets are $950,000; its target capital structure calls for 40% debt and 60% equity; its EBIT is $550,000; the interest rate on debt is 8%; and its tax rate is 20%. With a restricted policy, current assets will be 20% of sales, while under a relaxed...
Excellence Corporation follows a moderate current asset investment policy, but it is now considering a change,...
Excellence Corporation 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 $500,000; its fixed assets are $180,000; its target capital structure calls for 40% debt and 60% equity; its EBIT is $64,000; the interest rate on its debt is 14%; and its tax rate is 40%. With a restricted policy, current assets will be 18% of sales, while under a...
Buchholz Corporation follows a moderate current asset investment policy, but is now considering a change, perhaps...
Buchholz Corporation follows a moderate current asset investment policy, but is now considering a change, perhaps to a restricted or maybe to a relaxed policy. The firm's annual sales are $400,000; its fixed assets are $100,000; its target capital structure calls for 50% debt and 50% equity; its EBIT is $50,000; the interest rate on debt is 8%; and its tax rate is 25%. With a restricted policy, current assets will be 15% of sales, while under a relaxed policy,...
Buchholz Corporation follows a moderate current asset investment policy, but is now considering a change, perhaps...
Buchholz Corporation follows a moderate current asset investment policy, but is now considering a change, perhaps to a restricted or maybe to a relaxed policy. The firm's annual sales are $400,000; its fixed assets are $100,000; its target capital structure calls for 50% debt and 50% equity; its EBIT is $40,000; the interest rate on debt is 8%; and its tax rate is 25%. With a restricted policy, current assets will be 15% of sales, while under a relaxed policy,...
Jasper Enterprises follows a moderate current asset investment policy, but it is now considering whether to...
Jasper Enterprises follows a moderate current asset investment policy, but it is now considering whether to shift to a restricted or perhaps to a relaxed policy. The firm’s annual sales are $400,000, 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 40%. With a restricted policy, current assets will be 20% of sales, while under a...
Jasper Enterprises follows a moderate current asset investment policy, but it is now considering whether to...
Jasper Enterprises follows a moderate current asset investment policy, but it is now considering whether to shift to a restricted or perhaps to a relaxed policy. The firm’s annual sales are $400,000, 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 40%. With a restricted policy, current assets will be 10% of sales, while under a...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT