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 $4,400,000, 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 40%. 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 Exhibit 15.1.What's the difference in the projected ROEs under the restricted and relaxed policies? Do not round intermediate calculations.

A) 1.52%
B) 0.97%
C) 1.23%
D) 1.25%
E) 1.26%

Question

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 $4,400,000, 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 40%. 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 Exhibit 15.1.What's the difference in the projected ROEs under the restricted and relaxed policies? Do not round intermediate calculations.
​
A) 1.52%
B) 0.97%
C) 1.23%
D) 1.25%
E) 1.26%

Quizplus · Accepted Answer

11ea856c_8b6b_eecf_9aec_4d1f8765f574_TB1222_00 ? 11ea856c_8b6b_eed0_9aec_e7be044de5eb_TB1222_00 ?

Exhibit 15.1 Zorn Corporation Is Deciding Whether to Pursue a Restricted or a Restricted