Last year, a company had $355,000 in assets, $26,275 of net income, and a debt-to-total-assets ratio of 44%. Now suppose the newly hired CFO convinces the president to increase the debt ratio to 58%. 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 therefore keep net income unchanged. What was the original return on equity (ROE) for this company?
Last year, a company had $355,000 in assets, $26,275 of net income, and a debt-to-total-assets ratio of 44%. Now suppose the newly hired CFO convinces the president to increase the debt ratio to 58%. 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 therefore keep net income unchanged. What was the original return on equity (ROE) for this company?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Last year, a company had $355,000 in assets, $26,275 of net
income, and a debt-to-total-assets ratio of 44%. Now
suppose the newly hired CFO convinces the president to
increase the debt ratio to 58%. 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
therefore keep net income unchanged. What was the
original return on equity (ROE) for this company?
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