Assume that your firm had net income (earnings) this last year of $9,465,765.00 and had 2,280,907 common shares outstanding with a book value of $32 per share. Also assume that the firm sold 6,450,450 units at a price of $5.40 per unit, a variable cost of $2.00 per unit, and had total fixed costs of $3,655,355. Now assume that you expect sales to increase by 31 percent during the coming year and that your firm currently has a degree of financial leverage equal to 1.70. Given this information, and assuming that there will be no change in total assets or the number of shares outstanding, calculate the difference (expected increase) in ROE for the coming year (using the initial book value of equity for both calculations). 07.67% 8.73% 8.20% O 7.14% 8.47%
Assume that your firm had net income (earnings) this last year of $9,465,765.00 and had 2,280,907 common shares outstanding with a book value of $32 per share. Also assume that the firm sold 6,450,450 units at a price of $5.40 per unit, a variable cost of $2.00 per unit, and had total fixed costs of $3,655,355. Now assume that you expect sales to increase by 31 percent during the coming year and that your firm currently has a degree of financial leverage equal to 1.70. Given this information, and assuming that there will be no change in total assets or the number of shares outstanding, calculate the difference (expected increase) in ROE for the coming year (using the initial book value of equity for both calculations). 07.67% 8.73% 8.20% O 7.14% 8.47%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Assume that your firm had net income (earnings) this last year of $9,465,765.00 and had
2,280,907 common shares outstanding with a book value of $32 per share. Also assume
that the firm sold 6,450,450 units at a price of $5.40 per unit, a variable cost of $2.00
per unit, and had total fixed costs of $3,655,355. Now assume that you expect sales to
increase by 31 percent during the coming year and that your firm currently has a degree
of financial leverage equal to 1.70. Given this information, and assuming that there will
be no change in total assets or the number of shares outstanding, calculate the
difference (expected increase) in ROE for the coming year (using the initial book value of
equity for both calculations).
07.67%
8.73%
O8.20%
07.14%
8.47%
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