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 29 percent during the coming year and that your firm currently has a degree of financial leverage equal to 1.70. 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).

Answer rating: 100% (QA)

To calculate the expected increase in ROE for the coming year we need to first calculate the current ... View the full answer