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

question 89

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 $38,000;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? Do not round intermediate calculations.

• A) 4.85%
• B) 5.59%
• C) 5.70%
• D) 6.27%
• E) 4.79%

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Definitions:

Wechsler Scale

A set of standardized tests used to assess the intelligence of children and adults, taking both verbal and performance IQ into account.

Heuristics

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Infinite Creativity

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Regularization

The process in language learning where irregular forms are mistakenly made regular by applying standard rules, often seen in child language acquisition.