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%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter15: Distributions To Shareholders: Dividends And Repurchases

Section: Chapter Questions

Problem 3MC: Assume that IWT has completed its IPO and has a $112.5 million capital budget planned for the coming...

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