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:

Point-Of-Sale Disclosure

Information provided to consumers at the time of sale, detailing important facts and conditions about the product or service being purchased.

Investment Products

Various types of assets and securities (e.g., stocks, bonds, mutual funds) that individuals can invest in hoping to earn returns.

PCAOB

Public Company Accounting Oversight Board, a nonprofit corporation established by Congress to oversee the audits of public companies to protect investors.

FINRA

The Financial Industry Regulatory Authority, a non-governmental organization that regulates member brokerage firms and exchange markets, ensuring fairness and honesty in the financial industry.