A Firm Has Total Assets of $1,000,000 and a Debt

question 51

Multiple Choice

A firm has total assets of $1,000,000 and a debt ratio of 30 percent. Currently, it has sales of $2,500,000, total fixed costs of $1,000,000, and EBIT of $50,000. If the firm's before-tax cost of debt is 10 percent and the firm's tax rate is 40 percent, what is the firm's ROE?

• A) 1.7%
• B) 2.5%
• C) 6.0%
• D) 8.3%
• E) 9.8%