Jarrett Enterprises Is Considering Whether to Pursue a Restricted or Relaxed

question 49

Multiple Choice

Jarrett Enterprises is considering whether to pursue a restricted or relaxed current asset investment policy.The firm's annual sales are R400,000; its fixed assets are R100,000; debt and equity are each 50 percent of total assets.EBIT is R36,000, 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%; the ROE's are equal.
• B) 6.2%
• C) 5.4%
• D) 1.6%
• E) 3.8%

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Definitions:

Social Exclusion

The process or state where individuals or groups are systematically blocked from various rights, opportunities, and resources that are normally available to members of a different group.

Attraction

Refers to a force or factor that draws individuals together, leading to friendships, romantic relationships, or other forms of social connection.

Bad Apple Effect

A phenomenon where the negative behaviors of one individual can influence an entire group, leading to overall worse outcomes or moral standards.

Propinquity Effect

The phenomenon whereby people are more likely to form relationships with those they encounter frequently.