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

question 97

Multiple Choice

Shahrokhi Enterprises follows a moderate current asset investment policy,but it is now considering whether to shift to a restricted or perhaps 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)4.3%
• B)4.7%
• C)5.3%
• D)5.8%

---

Definitions:

Numeral

A symbol or group of symbols used to represent numbers.

Computed

Calculated or processed using a computer or calculator.

Measurement Basis

The method or system used to determine the quantity, weight, or dimension of something as a basis for analysis or calculation.

Interval Data

Data type where intervals between values are interpretable, but there is no true zero point.