The Projected EBIT of a Firm Is $300,000

question 315

Multiple Choice

The projected EBIT of a firm is $300,000. The firm currently has 100,000 shares of common stock outstanding at a value of $18 per share. The firm has no debt. By how much will the ROE change if the firm borrows $600,000 at 8% interest and uses the funds to repurchase shares of stock at the market price? Ignore taxes.

• A) -2.67%
• B) 1.67%
• C) 2.33%
• D) 4.33%
• E) 5.67%

---

Definitions:

Information

Data, knowledge, or facts obtained from study, experience, or instruction, useful for making decisions or judgments.

Acres

A unit of land area used primarily in the US, equal to 43,560 square feet, or about 4,047 square meters.

Incentive Function

Describes how various economic incentives influence behaviors and decisions of individuals or organizations.