#2. (12 points) Pennington Auto Group is considering whether to pursue a restricted or relaxed collection policy. The firm's monthly sales are expected to be $400,000 for each month of the next year, its fixed assets turnover ratio equals 3.5, and its debt and common equity are 40% and 60% of total assets, respectively. Expected EBIT in 10K (annual financial statement) is $180,000, the annual interest rate on the firm's debt is 7.5%, and the tax rate is supposed to be 32% for the year. 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 2.0. (a) If the fimm adopts a restricted policy, how much lower would its annual interest expense be than under the relaxed policy? (4 points) (6) What's the difference in the projected ROEs under the restricted and relaxed policies? (4 points) (c) Assume now that the company believes that ifit adopts a restricted policy, its sales will fall by 14% and EBIT will fall by 10%, but its total assets turnover, debt ratio, interest rate, and tax rate will all remain the same. In this situation, what's the difference between the projected ROEs under the restricted and relaxed policies? (4 points) #2. (12 points) Pennington Auto Group is considering whether to pursue a restricted or relaxed collection policy. The firm's monthly sales are expected to be $400,000 for each month of the next year, its fixed assets turnover ratio equals 3.5, and its debt and common equity are 40% and 60% of total assets, respectively. Expected EBIT in 10K (annual financial statement) is $180,000, the annual interest rate on the firm's debt is 7.5%, and the tax rate is supposed to be 32% for the year. 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 2.0. (a) If the fimm adopts a restricted policy, how much lower would its annual interest expense be than under the relaxed policy? (4 points) (6) What's the difference in the projected ROEs under the restricted and relaxed policies? (4 points) (c) Assume now that the company believes that ifit adopts a restricted policy, its sales will fall by 14% and EBIT will fall by 10%, but its total assets turnover, debt ratio, interest rate, and tax rate will all remain the same. In this situation, what's the difference between the projected ROEs under the restricted and relaxed policies? (4 points)