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

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 16.1.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?

A) 2.24%
B) 2.46%
C) 2.70%
D) 2.98%
E) 3.27%