Last year Jandik Corp. had $295,000 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.
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Last year Jandik Corp. had $295,000 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.
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- 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 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?
- Meyer Inc's total invested capital is $610,000, and its total debt outstanding is $185,000. The new CFO wants to establish a total debt to total capital ratio of 55%. The size of the firm will not change. How much debt must the company add or subtract to achieve the target debt to capital ratio?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 $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 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 Urbana Corp. had $197,500 of assets, $307,500 of sales, $19,575 of net income, and a debt-to-total-assets ratio of 37.5%. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. Assets, sales, and the debt ratio would not be affected. By how much would the cost reduction improve the ROE?Junjun Co. has debt ratio of .50 , total assets turnover of 0.25 , and a profit margin of 10%. The president is unhappy with the current return on equity , and he thinks it could be doubled . This could be accomplished (1) by increasing the profit margin to 14% and (2) by increasing debt utilization. Total assets turnover will not change. What new debt ratio along with the 14% profit margin is required to double the return on equity ? a. 0.75 b. 0.65 c. 0.70 d. 0.55
- JunJun & Co. has debt ratio of 0.50, a total asset turnover of 0.25 and a profit margin of 10%. The president is unhappy with the current return on equity, and he thinks it could be doubled. This could be accomplished (1) by increasing the profit margin to 14% and (2) by increasing debt utilization. Total assets turnover will not change. What new debt ratio, along with the 14% profit margin, is required to double the return on equity? (SHOW SOLUTION) a. 0.75 b. 0.70 c. 0.65 d. 0.55Edsel Research Labs has $28.20 million in assets. Currently half of these assets are financed with long-term debt at 5 percent and half with common stock having a par value of $10. Ms. Edsel, the Vice President of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 5 percent. The tax rate is 30 percent. Under Plan D, a $7.05 million long-term bond would be sold at an interest rate of 7 percent and 705,000 shares of stock would be purchased in the market at $10 per share and retired. Under Plan E, 705,000 shares of stock would be sold at $10 per share and the $7,050,000 in proceeds would be used to reduce long-term debt. a-1. How would each of these plans affect earnings per share? Consider the current plan and the two new plans. (Round your answers to 2 decimal places.) Earnings per Share Current Plan D Plan E a-2. Which…Last year Jullan Corp. had sales of P302,225 operating costs of P267,500 and year-end assets of P195,000. The debt-to-total-assets ratio was 27%, the interest rate on the debt was 8.2% and the firm's tax rate was 37%. The new CFO wants to see how the Return on Equity (ROE) would have been affected if the firm had used a 45% debt ratio. Assume that sales and total assets would not be affected, and that the interest rate and tax rate would both remain constant. By how much would the ROE change (increase or decrease in percentage) in response to the change in the capital structure?