Last year Hamdi Corp.had sales of $500,000,operating costs of $450,000,and year-end assets (which is equal to its total invested capital)of $435,000.The debt-to-total-capital ratio was 17%,the interest rate on the debt was 7.5%,and the firm's tax rate was 35%.The new CFO wants to see how the ROE would have been affected if the firm had used a 50% debt-to-total-capital ratio.Assume that sales,operating costs,total assets,total invested capital,and the tax rate would not be affected,but the interest rate would rise to 8.0%.By how much would the ROE change in response to the change in the capital structure? Do not round your intermediate calculations.
A) 1.84%
B) 1.32%
C) 1.90%
D) 1.74%
E) 1.67%

Question

Quizplus · Accepted Answer

The Answer of Last year Hamdi Corp.had sales of $500,000,operating costs of $450,000,and year-end assets (which is equal to its total invested capital)of $435,000.The debt-to-total-capital ratio was 17%,the interest rate on the debt was 7.5%,and the firm's tax rate was 35%.The new CFO wants to see how the ROE would have been affected if the firm had used a 50% debt-to-total-capital ratio.Assume that sales,operating costs,total assets,total invested capital,and the tax rate would not be affected,but the interest rate would rise to 8.0%.By how much would the ROE change in response to the change in the capital structure? Do not round your intermediate calculations.
A) 1.84%
B) 1.32%
C) 1.90%
D) 1.74%
E) 1.67%

Last Year Hamdi Corp