Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales
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Question:
Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $ million as a result of an asset expansion presently being undertaken. Fixed assets total $ million, and the firm plans to maintain a debt ratio. Rentz's interest rate is currently on both shortterm and longerterm debt which the firm uses in its permanent structure Three alternatives regarding the projected current asset level are under consideration: a tight policy where current assets would be only of projected sales, a moderate policy where current assets would be of sales, and a relaxed policy where current assets would be of sales. Earnings before interest and taxes should be of total sales, and the federalplusstate tax rate is aWhat is the expected return on equity under each current asset level? bIn this problem, we assume that expected sales are independent of the current asset Policy. Is this a valid assumption? Why or why not? c How would the firm's risk be affected by the different policies? can you please provide the full answer for all the questions, please!
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