Exhibit 16.1
Zorn Corporation is deciding whether to pursue a restricted or relaxed working capital investment policy. The firm's annual sales are expected to total $3,600,000, 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.If the firm adopts a restricted policy,how much lower would its interest expense be than under the relaxed policy?

Question

Exhibit 16.1
Zorn Corporation is deciding whether to pursue a restricted or relaxed working capital investment policy. The firm's annual sales are expected to total $3,600,000, 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.
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-Refer to Exhibit 15.1.If the firm adopts a restricted policy,how much lower would its interest expense be than under the relaxed policy? ​

Quizplus · Accepted Answer

The Answer of Exhibit 16.1
Zorn Corporation is deciding whether to pursue a restricted or relaxed working capital investment policy. The firm's annual sales are expected to total $3,600,000, 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.
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​
-Refer to Exhibit 15.1.If the firm adopts a restricted policy,how much lower would its interest expense be than under the relaxed policy? ​

Exhibit 16.1 Zorn Corporation Is Deciding Whether to Pursue a Restricted or Restricted