Suppose That Pop's Cycles,Inc

question 62

Multiple Choice

Suppose that Pop's Cycles,Inc.has a ROA of 7% and pays a 6% coupon on its debt.Pop's has a capital structure that is 70% equity and 30% debt.Relative to a firm that is 100% equity-financed,Pop's Net Profit will be ________ and its ROE will be _______.

• A) lower,lower
• B) lower,higher
• C) higher,lower
• D) higher,higher
• E) It is impossible to predict.

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Definitions:

Taking Advantage

Taking advantage refers to the act of using a situation or person's condition to gain a benefit, often in an unethical or unfair manner.

Insufficient Postage

Occurs when an item of mail does not have enough postage attached to cover the required fee for delivery.

UCC Rule

A set of regulations under the Uniform Commercial Code that govern commercial transactions in the United States.

Overnighted

A term used to describe items that are shipped or delivered to reach their destination overnight.