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:

Matched Designs

A research method in which participants are paired or grouped based on similarities in key characteristics to control for those variables in an experiment.

Correlational Experiments

Research methods that examine the relationship or correlation between two or more variables without manipulation by the experimenter.

Psychological Effects

The impact on an individual's thoughts, feelings, and behaviors resulting from various stimuli or experiences.

Natural

Existing in or derived from nature; not made or caused by humankind.