Hardwig Inc. Hardwig Inc.is Considering Whether to Pursue a Restricted or Relaxed

question 67

Multiple Choice

Hardwig Inc.
Hardwig Inc.is considering whether to pursue a restricted or relaxed current asset 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 25%.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.
-Refer to the data for Hardwig Inc.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:

Weak Correlation

A statistical relationship between two variables that indicates a slight linear association, usually represented by a correlation coefficient close to zero.

Positive

Refers to a value greater than zero, often indicating a favorable condition or result.

Negative

In mathematics or statistics, indicating a value less than zero or having a detrimental effect in a specific context.

Regression Model

A statistical technique that models and analyzes the relationships between a dependent variable and one or more independent variables.