Multiple Choice
Hardwig Inc.
Hardwig Inc.is considering whether to pursue a restricted or relaxed current asset 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 25%.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 the data for Hardwig Inc.If the firm adopts a restricted policy, how much lower would its interest expense be than under the relaxed policy?
A) $8,418
B) $8,861
C) $9,327
D) $9,818
E) $10,309
Correct Answer:
Verified
Correct Answer:
Verified
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