Business, 15.07.2020 04:01 videogamer1192

Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $2 million as a result of an asset expansion presently being undertaken. Fixed assets total $3 million, and the firm plans to maintain a 40% debt-to-assets ratio. Rentz's interest rate is currently 8% on both short-term and long-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current assets level are under consideration: 1. a restricted policy where current assets would be only 45% of projected sales.
2. a moderate policy where current assets would be 50% of sales.
3. a relaxed policy where current assets would be 60% of sales. Earnings before interest and taxes should be 10% of total sales, and the federal-plus-state tax rate is 40%.

Required:
What is the expected return on equity under each current asset level? Round your answers to two decimal places.

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Rentz Corporation is investigating the optimal level of current assets for the coming year. Manageme...

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