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 29 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). O 8.20% O 8.47% 8.73% C 7.14%
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 29 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). O 8.20% O 8.47% 8.73% C 7.14%
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 29 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).
O 8.20%
08.47%
8.73%
07.14%
0767%
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