Rentz Corporation is investigating the optimal level of currentassets for the coming year. Management expects sales to increase toapproximately $2 million as a result of an asset expansionpresently being undertaken. Fixed assets total $1 million, and thefirm plans to maintain a 40% debt-to-assets ratio. Rentz's interestrate is currently 9% on both short-term and long-term debt (whichthe firm uses in its permanent structure). Three alternativesregarding the projected current assets level are underconsideration: (1) a restricted policy where current assets wouldbe only 45% of projected sales, (2) a moderate policy where currentassets would be 50% of sales, and (3) a relaxed policy wherecurrent assets would be 60% of sales. Earnings before interest andtaxes should be 12% of total sales, and the federal-plus-state taxrate is 40%.
What is the expected return on equity under each current assetslevel? Round your answers to two decimal places.
A. Restricted policy
B. Moderate policy
C. Relaxed policy
