Exhibit 15.1 Zorn Corporation is deciding whether to pursue a restricted or relaxed working capital...
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Exhibit 15.1 Zorn Corporation is deciding whether to pursue a restricted or relaxed working capital investment policy. The firm's annual sales are expected to total $4,400 ooo its xed assets turnover ratio equals 4.0 and its debt and common equity are each 50% of ota assets. BIT is o the interest rate on the m n 10%, and he tax rate is 40%. If the company ollows a restricted policy its total assets turn w be 2 Under a relaxed polic s to a asse s turnover w e , Refer to Exh hit 15-1. Assume now that the company believes that if it adopts a restricted policy, its sales will fall by 15% and EBIT will fall by 10%, but its total assets turnover, debt ratio, interest rate, and tax rate will all remain the same. In this situation, what's the difference between the projected ROEs under the restricted and relaxed policies? O a. 2.2196 b. 1.55% c. 2.12% O d. 1.83% O e. 1.88%
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