You Have Been Given the Attached Information on the Crum

question 17

Multiple Choice

You have been given the attached information on the Crum Company. Crum expects sales to grow by 50 percent in the next year and operating costs should increase in proportion to sales. Fixed assets were being operated at 40 percent of capacity in the most recent year, but all other assets were used to full capacity. Underutilized fixed assets cannot be sold. Current assets and spontaneous liabilities should increase in proportion to sales during the next year. The company plans to finance any external funds needed as 35 percent notes payable and 65 percent common stock. The interest rate is 8 percent; base interest expense on the debt at the beginning of the year (cash earns no interest income) . The dividend payout ratio will remain constant, irrespective of how many shares of stock are outstanding. What is Crum's projected ROE using the percentage of sales method? (Ignore any financing feedback effects.)

• A) 16.98%
• B) 23.73%
• C) 25.68%
• D) 19.99%
• E) 23.24%

---

Definitions:

Bottled Water

Packaged water for consumption, sold in plastic or glass bottles.

Dominant Strategy

In game theory, a strategy that is the best for a player to follow no matter what the opponent does.

High Price

A situation where the cost of a good or service is considered to be above the average or expected price.

Low Price

A situation where the cost of a good or service is relatively minimal compared to similar goods, often due to high supply, low demand, or competitive strategies.