What is the difference in the projected return on equities


Problem: Annual sales is R3600000. Fixed assets turnover ratio is 4. debt and ordinary share equity are each 50% of total assets. EBIT is R150 000, the interest rate on the firm's debt is 10%, and the tax rate is 40%. If the company follows an aggressive policy, its total assets turnover will be 2.5. Under a conservative policy its total assets turnover will be 2.2. What is the difference in the projected return on equities (ROEs) under the aggressive and conservative policies?

 

 

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Finance Basics: What is the difference in the projected return on equities
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