Jarrett Enterprises Is Considering Whether to Pursue a Restricted or Relaxed

question 70

Multiple Choice

Jarrett Enterprises is considering whether to pursue a restricted or relaxed current asset investment policy. The firm's annual sales are $400,000; its fixed assets are $100,000; debt and equity are each 50 percent of total assets. EBIT is $36,000, the interest rate on the firm's debt is 10 percent, and the firm's tax rate is 40 percent. With a restricted policy, current assets will be 15 percent of sales. Under a relaxed policy, current assets will be 25 percent of sales. What is the difference in the projected ROEs between the restricted and relaxed policies?

• A) 0.0%
• B) 6.2%
• C) 5.4%
• D) 1.6%
• E) 3.8%

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Definitions:

Minimal Impact

The smallest or least significant effect or influence that an action may have on a given system or environment.

Autonomous Decisions

Decisions made independently by an individual or entity, often without the need for external approval or guidance.

Job Sharing

A work option in which two part-time employees carry out the tasks associated with a single job.

Part-time Employees

Workers who are employed for fewer hours than the full working time, typically offering flexibility and limited benefits compared to full-time positions.