Find expected return on equity under each asset policy

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Reference no: EM131953159

Question: The Calgary Company is attempting to establish a current assets policy. Fixed assets are $600,000, and the firm plans to maintain a 50% debt-to-assets ratio. Calgary has no operating current liabilities. The interest rates is 10% on all debt. Three alternative current assets policies are under consideration: 40%, 50%, and 60% of projected sales. The company expects to earn 15% before interest and taxes on sales of $3million. Calgary's effective federal-plus-state tax rate is 40%. What is the expected return on equity under each asset policy?

Reference no: EM131953159

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