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Last year Blease Inc had a total assets turnover of 1.33 and an equity multiplier of 1.75. Its sales were $230,000 and i

Posted: Tue Jan 18, 2022 1:02 pm
by answerhappygod
Last year Blease Inc had a total assets turnover of 1.33 and an
equity multiplier of 1.75. Its sales were $230,000 and its net
income was $10,600. The firm finances using only debt and common
equity, and its total assets equal total invested capital. The CFO
believes that the company could have operated more efficiently,
lowered its costs, and increased its net income by $10,250 without
changing its sales, assets, or capital structure. Had it cut costs
and increased its net income by this amount, how much would the ROE
have changed? Do not round your intermediate calculations.
Group of answer choices
11.51%
10.58%
11.93%
11.31%
10.37%
Last year Jandik Corp. had $215,000 of assets (which is equal to
its total invested capital), $18,750 of net income, and a
debt-to-total-capital ratio of 37%. Now suppose the new CFO
convinces the president to increase the debt-to-total-capital ratio
to 48%. Sales, total assets and total invested capital will not be
affected, but interest expenses would increase. However, the CFO
believes that better cost controls would be sufficient to offset
the higher interest expense and thus keep net income unchanged. By
how much would the change in the capital structure improve the
ROE? Do not round your intermediate calculations.
Group of answer choices
3.07%
3.16%
3.37%
2.93%
3.57%
Last year Kruse Corp had $355,000 of assets (which is equal to
its total invested capital), $403,000 of sales, $28,250 of net
income, and a debt-to-total-capital ratio of 39%. The new CFO
believes the firm has excessive fixed assets and inventory that
could be sold, enabling it to reduce its total assets and total
invested capital to $252,500. The firm finances using only debt and
common equity. Sales, costs, and net income would not be affected,
and the firm would maintain the same capital structure (but with
less total debt). By how much would the reduction in assets improve
the ROE? Do not round your intermediate calculations.
Group of answer choices
5.30%
4.29%
4.66%
5.35%
5.24%
Last year Hamdi Corp. had sales of $500,000, operating costs of
$450,000, and year-end assets (which is equal to its total invested
capital) of $425,000. The debt-to-total-capital ratio was 17%, the
interest rate on the debt was 7.5%, and the firm's tax rate was
25%. The new CFO wants to see how the ROE would have been affected
if the firm had used a 50% debt-to-total-capital ratio. Assume that
sales, operating costs, total assets, total invested capital, and
the tax rate would not be affected, but the interest rate would
rise to 8.0%. By how much would the ROE change in response to the
change in the capital structure? Do not round your
intermediate calculations.
Group of answer choices
1.97%
2.43%
1.95%
2.17%
2.71%
Quigley Inc. is considering two financial plans for the coming
year. Management expects sales to be $300,000, operating costs to
be $265,000, assets (which is equal to its total invested capital)
to be $200,000, and its tax rate to be 25%. Under Plan A it would
finance the firm using 25% debt and 75% common equity. The interest
rate on the debt would be 8.8%, but under a contract with existing
bondholders the TIE ratio would have to be maintained at or above
5.4. Under Plan B, the maximum debt that met the TIE constraint
would be employed. Assuming that sales, operating costs, assets,
total invested capital, the interest rate, and the tax rate would
all remain constant, by how much would the ROE change in response
to the change in the capital structure? Do not round your
intermediate calculations.
Group of answer choices
3.89%
3.67%
3.49%
4.22%
4.40%