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Difference in the projected roe

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Buchholz Corporation follows a moderate current asset investment policy, but it is nowconsidering a change, perhaps to a restricted or maybe to a relaxed policy. The firm'sannual sales are $400,000; its fixed assets are $100,000; its target capital structure callsfor 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 15% of sales, whileunder a relaxed policy they will be 25% of sales. What is the difference in the projectedROEs between the restricted and relaxed policies?

Reference no: EM131152673

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