Last Year Ann Arbor Corp Had $155,000 of Assets (Which

question 94

Multiple Choice

Last year Ann Arbor Corp had $155,000 of assets (which equals total invested capital) ,$305,000 of sales,$20,000 of net income,and a debt-to-total-capital ratio of 37.5%.The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000.The firm finances using only debt and common equity.Assets,total invested capital,sales,and the debt to capital ratio would not be affected.By how much would the cost reduction improve the ROE?

• A)11.51%
• B)12.11%
• C)12.75%
• D)13.42%
• E)14.09%

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