Exhibit 15.1 Zorn Corporation is deciding whether to pursue a restricted or relaxed working capital investment policy. The firm's annual sales are expected to total $4,400,000, its fixed assets turnover ratio equals 4.0, and its debt and common equity are each 50% of total assets. EBIT is $150,000, the interest rate on the firm's debt is 10%, and the tax rate is 40%. 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 2.2. Refer to Exhibit 15.1. What's the difference in the projected ROEs under the restricted and relaxed policies? Do not round intermediate calculations. ?
A. 1.52%
B. 0.97%
C. 1.23%
D. 1.25%
E. 1.26%
Answer: C
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