ABC firm is attempting to establish a current asset policy. Fixed assets are $600,000 and the firm plans to maintain a 50% debt ratio. The firm has no operating liabilities. The interest rate on debt is 10%. Three alternative current asset policies are under consideration: 40%, 50% and 60% on sales. The company expects to earn 15% before interest and taxes on sales of $3 million. The tax rate is 40%. What is the ROI in each alternative?
Current Asset Policy for ABC
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