Edwards Enterprises Follows a Moderate Current Asset Investment Policy,but It

question 102

Multiple Choice

Edwards Enterprises follows a moderate current asset investment policy,but it is now considering a change,perhaps to a restricted or maybe to a relaxed policy.The firm's annual sales are $400,000; its fixed assets are $100,000; its target capital structure calls for 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,while under a relaxed policy they will be 25% of sales.What is the difference in the projected ROEs between the restricted and relaxed policies.

• A)4.25%
• B)4.73%
• C)5.25%
• D)5.78%
• E)6.35%

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Definitions:

Memory Cells

A type of white blood cell that retains a memory of previously encountered pathogens and mounts a stronger and faster response upon reexposure.

Antigen

A substance that when introduced into the body, prompts the generation of an immune response by the production of antibodies.

Secondary Immune Response

The body's immune system's more rapid and intensified response to a pathogen it recognizes from a previous infection.

Memory Cells

Specific types of immune cells that remember past infections and can quickly respond to repeated exposures to the same pathogen.