Assume Now That the Company Believes That If It Adopts

question 25

Multiple Choice

Assume now that the company believes that if it adopts a restricted policy, its sales will fall by 15% and EBIT will fall by 10%, but its total assets turnover, debt ratio, interest rate, and tax rate will all remain the same. In this situation, what's the difference between the projected ROEs under the restricted and relaxed policies?

• A) 2.24%
• B) 2.46%
• C) 2.70%
• D) 2.98%
• E) 3.27%

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Definitions:

Monopolistically Competitive

A market structure where many companies sell products that are similar but not identical, allowing for significant influence over pricing.

Short-Run Equilibrium

A state in the economic short term where demand equals supply, and there are no external forces prompting change.

Monopolistically Competitive

Describes a market structure where many companies sell products that are similar but not identical, leading to competition based on product differentiation.

Average Total Cost

is the total cost of production (fixed and variable costs combined) divided by the quantity of output produced.