Interest expense be than under the relaxed policy

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ABC Corp is deciding whether to pursue a restricted or relaxed current asset investment policy. The firm's annual sales are expected to total $1.5M, its fixed assets turnover ratio equals 3.5, and its debt is 45% of total assets. EBIT is $250,000, the interest rate on the firm's debt is 8%, and the tax rate is 32%. If the company follows a restricted policy, its total assets turnover will be 2.7. 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?

Reference no: EM131556086

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