Bha Last year Ann Arbor Corp had $240,000 of assets (which equals total invested capital),$305,000 of sales, $20,000 of net income, and a debt-to-total-capital ratio of 37.5%. Thenew CFO believes that a new computer program will enable the company to reduce costsand thus raise net income to $33,000. The firm finances using only debt and commonequity. Assets, total invested capital, sales, and the debt to capital ratio would not beaffected. By how much would the cost reduction improve the ROE? Do not round yourintermediate calculations.8.41%9.88%8.84%8.67%9.97%

ROE is an abbreviation for "Return on Equity." This is a financial ratio that measures how…

Answered: Last year Ann Arbor Corp had $240,000…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 20P

See similar textbooks

Similar questions

Last year Ann Arbor Corp had $180,000 of assets (which equals total invested capital), $305,000 of sales, $19,000 of net income, and a debt-to-total-capital ratio of 37.5%. The new CFO believes that a new computer program will enable the company to reduce costs and thus raise net income to $31,000. The firm finances using only debt and common equity. Assets, total invested capital, sales, and the debt-to-capital ratio would not be affected. By how much would the cost reduction improve the ROE? Do not round your intermediate calculations.
Last year Ann Arbor Corp had $250,000 of assets (which equals total invested capital), $305,000 of sales, $20,000 of net income, and a debt-to-total-capital ratio of 37.5%. The new CFO believes that a new computer program will enable the company to reduce costs and thus raise net income to $33,000. The firm finances using only debt and common equity. Assets, total invested capital, sales, and the debt to capital ratio would not be affected. By how much would the cost reduction improve the ROE? Do not round your intermediate calculations. a. 6.74% b. 8.32% c. 8.57% d. 8.82% e. 8.15%
Last year Ann Arbor Corp had $155,000 of assets (which equals total invested capital), $305,000 of sales, $20,000 of net income, and a debt-to-total-capital ratio of 37.5%. The new CFO believes that a new computer program will enable the company to reduce costs and thus raise net income to $31,000. The firm finances using only debt and common equity. Assets, total invested capital, sales, and the debt-to-capital ratio would not be affected. By how much would the cost reduction improve the ROE? Do not round your intermediate calculations. a. 11.35 p.p. b. 15.14 p.p. c. 18.92 p.p. d. 20.65 p.p. e. 7.10 p.p.
Last year Rennie Industries had sales of $255,000, assets of $175,000 (which equals total invested capital), a profit margin of 5.3%, and an equity multiplier of 1.2. The CFO believes that the company could reduce its assets by $51,000 without affecting either sales or costs. The firm finances using only debt and common equity. Had it reduced its assets by this amount, and had the debt/total invested capital ratio, sales, and costs remained constant, how much would the ROE have changed? Do not round your intermediate calculations. 4.23% 3.35% 3.39% 3.81% 4.69%
Last year Rosenberg Corp. had $195, 000 of assets, S18,775 of net income, and a debt-to-total-assets ratio of 32%. Now suppose the new CFO convinces the president to increase the debt ratio to 48%. Sales and total assets 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? Question 5 options: 4.36% 4.57% 4.80% 5.04%
Last year Rosenberg Inc. had $225,000 of assets, $48,775 of EBIT, and a debt-to-total-assets ratio of 32%. Now suppose the new CFO convinces the president to increase the debt ratio to 48%. Sales and total assets will not be affected, but interest expenses would increase. The interest rate on the firm’s debt was 7.5%, and the tax rate was 35%. Assume that the interest rate and tax rate would both remain constant. By how much would the change in the capital structure improve the ROE?
Last year Chantler Corp. had $200,000 of assets, $20,000 of net income, and a debt-to-total-assets ratio of 30%. Now suppose the new CFO convinces the president to increase the debt ratio to 45%. Sales and total assets 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?
Last year Blease Inc had a total assets turnover of 1.33 and an equity multiplier of 1.75. Its sales were $310,000 and its net income was $9,000. 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 $11,000 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. a. 6.76 p.p. b. 6.21 p.p. c. 3.55 p.p. d. 4.72 p.p. e. 8.26 p.p. The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Balance Sheet (Millions…
Goldilochs Inc. reported sales of $8 million and net income of $1.5 million. The firm has $10.5 million in total assets and $1 million in current liabilities. The firm currently pays out 75 percent of its net income to shareholders. Assume that all assets and current liabilities are expected to grow with sales. If Goldilochs does not want to rely on any external sources of funds, what is the most sales can grow (in chars)? $187,900 $299,900 $328,800 $364,100
Medallion Cooling Systems, has total assets of $10,900,000, EBIT of $1,990,000, and preferred dividends of $205,000and is taxed at a rate of 40%.In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment: Capital structure debt ratio Cost of debt, rd Number of common stock shares Required return, rs 0% 0% 198,000 12.1% 15 7.9 171,000 13.2 30 8.9 141,000 13.8 45 12.1 107,000 16.1 60 14.9 76,000 20.1 a. Calculate earnings per share for each level of indebtedness. Debt Ratio 0% EBIT $ 1,990,000 Less: Interest $ EBT $ Taxes @40% $ Net profit $ Less: Preferreddividends $ Profits available to common stockholders $…
Last year ABC Company had $200,000 of total assets, $25,746 of net income, and a debt-to-total-assets ratio of 32%. Now suppose the new CFO convinces the president to increase the debt-to-total assets ratio to 45%. Sales and total assets 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 (that is, new ROE - old ROE)? Round your answer to two decimal places of percentage. (Hint: ROE = net income/common equity) Group of answer choices 4.39% 4.47% 4.42% 4.53% 4.50%
Last year Blease Inc had a total assets turnover of 1.33 and an equity multiplier of 1.75. Its sales were $305,000 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.

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS