Last year Jandik Corp. had $365,000 of assets, $18,750 of net income, and a debt-to-total-assets ratio of
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Last year Jandik Corp. had $365,000 of assets, $18,750 of net income, and a debt-to-total-assets ratio of 37%. Now suppose the new CFO convinces the president to increase the debt ratio to 48%. 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 thus keep net income unchanged. By how much would the change in the capital structure improve the ROE?
a. 1.41%
b. 2.09%
c. 1.97%
d. 1.72%
e. 1.35%
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...
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Related Book For
Vector Mechanics for Engineers Statics and Dynamics
ISBN: 978-0073398242
11th edition
Authors: Ferdinand Beer, E. Russell Johnston Jr., David Mazurek, Phillip Cornwell, Brian Self
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