Aurillo Equipment Company (AEC)projected That Its ROE for Next Year

question 26

Multiple Choice

Aurillo Equipment Company (AEC) projected that its ROE for next year would be just 6%.However,the financial staff has determined that the firm can increase its ROE by refinancing some high interest bonds currently outstanding.The firm's total debt will remain at $200,000 and the debt ratio will hold constant at 80%,but the interest rate on the refinanced debt will be 10%.The rate on the old debt is 14%.Refinancing will not affect sales which are projected to be $300,000.EBIT will be 11% of sales,and the firm's tax rate is 40%.If AEC refinances its high interest bonds,what will be its projected new ROE?

• A) 3.0%
• B) 8.2%
• C) 10.0%
• D) 15.6%
• E) 18.7%

Ascertain the budgeted accounts receivable balance.

Estimate the budgeted required production units.

Calculate the estimated unit product cost.

Determine the estimated direct labor cost.

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Definitions:

Stock Performance

It refers to the return on investment in a company's stock, taking into account capital appreciation and dividends, over a specified period.

Systematic Risk

The danger associated with the whole market or a specific market segment that cannot be reduced by diversifying investments.

Rate of Inflation

A measure of the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

Expected Return

The predicted amount of gain or loss an investment is anticipated to generate, based on historical performance or statistical analysis.