Answer:
c. 1.50%
Explanation:
The Hardwig, Inc is considering to pursue a relaxed or restricted current asset investment. We need to calculate the ROE for both the situations. The Net income in the both situation will be;
EBIT - Interest expense - Tax expense = Net Income
Restricted situation = $150,000 - 72,000 - 31,200 = $46,800
Relaxed situation = $150,000 - 81,818 - 27,273 = $40,909
ROE = Net income / equity
Relaxed situation = $40,909 / $818,180 = 5.00%
Restricted situation = $46,800 / $720,000 = 6.50%
The difference between both ROE = 1.50%
