Year Rosenberg Corp

question 62

Multiple Choice

year Rosenberg Corp.had $195,000 of assets, $18,775 of net income, and a debt-to-total-assets ratio of 32%.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)4.36%
• B)4.57%
• C)4.80%
• D)5.04%
• E)5.30%

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Definitions:

Interest Rate

The cost of borrowing money or the reward for saving, usually expressed as a percentage of the principal amount per period.

$100

A monetary denomination or value equivalent to one hundred U.S. dollars.

Usury Laws

Regulations governing the maximum interest rates that can be charged on loans, intended to prevent excessive charges.

Borrowers

Individuals or entities that receive funds from a lender under the agreement to repay the principal amount along with interest or other charges.