Multi-Part 16-1: Zorn Corporation is deciding whether to pursue a restricted or

Question

Multi-Part 16-1: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. Refer to Multi-Part 16-1. What's the difference in the projected ROEs under the restricted and relaxed policies? Answer                                                   
           1.20%                             
           1.50%                             
           1.80%                             
           2.16%                             
           2.59% Multi-Part 16-1: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. Refer to Multi-Part 16-1. What's the difference in the projected ROEs under the restricted and relaxed policies? Multi-Part 16-1: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. Refer to Multi-Part 16-1. What's the difference in the projected ROEs under the restricted and relaxed policies? 1.20% 1.50% 1.80% 2.16% 2.59%                             
           1.20%                             
           1.50%                             
           1.80%                             
           2.16%                             
           2.59%

Explanation / Answer

1.50%

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