Travis Corporation's ROE last year was 30 percent, but its management has developed a new operating plan designed to improve the firm's situation. The new plan calls for a total debt ratio of 36 percent, which will result in interest charges of $8,000 per year. Management projects an EBIT of $120,000 on sales of $460,000, and it expects to have a total assets turnover ratio of 1.8. Under these conditions, the federal-plus-state tax rate will be 40 percent. If the changes are made, what return on equity will Hamilton earn? A. 32.88 percent B. 37.15 percent C. 41.09 percent D. 46.42 percent
Travis Corporation's ROE last year was 30 percent, but its management has developed a new operating plan designed to improve the firm's situation. The new plan calls for a total debt ratio of 36 percent, which will result in interest charges of $8,000 per year. Management projects an EBIT of $120,000 on sales of $460,000, and it expects to have a total assets turnover ratio of 1.8. Under these conditions, the federal-plus-state tax rate will be 40 percent. If the changes are made, what return on equity will Hamilton earn? A. 32.88 percent B. 37.15 percent C. 41.09 percent D. 46.42 percent
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
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Transcribed Image Text:Travis Corporation's ROE last year was 30 percent, but its management has developed a new
operating plan designed to improve the firm's situation. The new plan calls for a total debt ratio of
36 percent, which will result in interest charges of $8,000 per year. Management projects an EBIT
of $120,000 on sales of $460,000, and it expects to have a total assets turnover ratio of 1.8.
Under these conditions, the federal-plus-state tax rate will be 40 percent. If the changes are made,
what return on equity will Hamilton earn?
A. 32.88 percent
B. 37.15 percent
C. 41.09 percent
D. 46.42 percent
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