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Suppose a firm follows a moderate current asset investment policy, but it is now considering a...

Suppose a firm follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed policy. The firm's annual sales are €400,000; its fixed assets (FA) are €100,000; its target capital structure calls for 50% debt and 50% equity; its EBIT is €35,000; the interest rate on its debt is 10%; and its tax rate is 40%. With a restricted policy, current assets (CA) will be 15% of sales, while under a relaxed policy they will be 25% of sales. What is the difference in the projected ROEs between the restricted and relaxed policies? ROE=NI/CE.

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