Last Year Altman Corp

question 84

Multiple Choice

Last year Altman Corp.had $205,000 of assets, $303,500 of sales, $18,250 of net income, and a debt-to-total-assets ratio of 41%.The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets to $152,500.Sales, costs, and net income would not be affected, and the firm would maintain the 41% debt ratio.By how much would the reduction in assets improve the ROE?

• A) 4.69%
• B) 4.93%
• C) 5.19%
• D) 5.45%
• E) 5.73%

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Definitions:

Implicit Marginal Tax Rate

The effective rate at which an additional dollar of income is taxed, taking into account both explicit taxes and the phase-out of benefits or allowances.

Government Transfers

Payments by the government to individuals or entities without the expectation of direct repayment or work in return, often taking the form of welfare, subsidies, or grants.

Tax Rate

The percentage at which an individual or corporation is taxed by the government.

Economic Analysis

A systematic approach to examining the allocation of resources, focusing on the production, distribution, and consumption of goods and services.