Last Year Jandik Corp

question 108

Multiple Choice

Last year Jandik Corp.had $295,000 of assets (which is equal to its total invested capital) ,$18,750 of net income,and a debt-to-total-capital ratio of 37%.Now suppose the new CFO convinces the president to increase the debt-to-total-capital ratio to 48%.Sales,total assets,and total invested capital will not be affected,but interest expenses would increase.However,the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged.By how much would the change in the capital structure improve the ROE?

• A)2.13%
• B)2.35%
• C)2.58%
• D)2.84%
• E)3.12%

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Definitions:

Error Mean Square

A measure used in statistics to quantify the average of squares of errors or deviations.

Sums of Squared Deviations

The total of the squared differences between each observation in a data set and the mean of that data set, used in various statistical methods to measure variability.

Sample Mean

The average value calculated from a subset (sample) of a population.

ANOVA Table

A table used to summarize the results and findings of an Analysis of Variance, displaying sources of variance, degrees of freedom, and significance levels.