Cisco Systems wishes to analyze the joint impact of its working capital investment and financing policies on shareholder return. The company has $24 million in fixed assets. Cisco wishes to maintain a debt ratio of 40%. The company's tax rate is also 40%. The following information was developed for the two policies under consideration (dollars in millions): Aggressive

Conservative

Investment in current assets
$28

$34

Amount of short term debt
$16

$10

EBIT
$5.4

$5.8

Interest rate–LTD (%)
12.0

11.0

Interest rate–STD (%)
7.5

7.0



For the aggressive approach, Cisco's ROE is __ and for the conservative approach the ROE is __.

a. 4.18%; 3.77%
b. 11.62%; 10.48%
c. 6.97%; 6.29%
d. None of these are correct