Transcribed Image Text
Big Retailer (BR) follows a moderate current asset investmentpolicy, but is now considering a change, perhaps to a restricted ormaybe to a relaxed policy. BR’s annual sales are $1,400,000; itsfixed assets are $950,000; its target capital structure calls for40% debt and 60% equity; its EBIT is $450,000; the interest rate ondebt is 8%; and its tax rate is 20%. With a restricted policy,current assets will be 20% of sales, while under a relaxed policy,current assets will be 35% of sales. What is thedifference in the projected ROEs between therestricted and relaxed policies? Enter your answer rounded to twodecimal places. Do not enter % in the answer box. For example, ifyour answer is 0.12345 or 12.345% then enter as 12.35 in the answerbox.