Exhibit 16.1 Zorn Corporation Is Deciding Whether to Pursue a Restricted or Restricted

question 57

Multiple Choice

Exhibit 16.1
Zorn Corporation is deciding whether to pursue a restricted or relaxed working capital 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.
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-Refer to Exhibit 15.1.If the firm adopts a restricted policy,how much lower would its interest expense be than under the relaxed policy? ​

• A)$ 8,418
• B)$ 8,861
• C)$ 9,327
• D)$ 9,818
• E)$10,309

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Definitions:

Financing Activities

Transactions and events that affect the long-term liabilities and equity of a company, as reported in the cash flow statement.

Net Change In Cash

The difference in a company's cash and cash equivalents at the beginning and end of a financial period, reflecting its overall cash flow health.

Inventory Turnover

A ratio showing how many times a company's inventory is sold and replaced over a specific period, indicating the efficiency of its inventory management.

COGS

Cost of Goods Sold; the direct costs attributable to the production of the goods sold in a company.