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Your Company, Which Is Financed Entirely with Common Equity, Plans

question 65

Multiple Choice

Your company, which is financed entirely with common equity, plans to manufacture a new product, a cell phone that can be worn like a wristwatch. Two robotic machines are available to make the phone, Machine A and Machine B. The price per phone will be $250.00 regardless of which machine is used to make it. The fixed and variable costs associated with the two machines are shown below, along with the capital (all equity) that must be invested to purchase each machine. The expected sales level is 25,000 units. Your company has tax loss carry-forwards that will cause its tax rate to be zero for the life of the project, so T = 0. How much higher or lower will the project's ROE be if you select the machine that produces the higher ROE, i.e., what is ROEB - ROEA? (Hint: Since the firm uses no debt and its tax rate is zero, ROE = EBIT/Required investment.)

Definitions:

Service Delivery

The act of providing a service to customers or clients, encompassing the processes and interactions to meet their needs.

Communication Gap

A discrepancy or barrier in understanding between what is said and what is understood, often leading to misinterpretation or conflict.

Knowledge Gap

The difference between what is known and what needs to be known to effectively understand and perform tasks or make informed decisions.

Assurance

is a positive declaration intended to give confidence or certainty about a product, service, or outcome.