Fast Track Inc

question 30

Essay

Fast Track Inc.is in the process of acquiring another business.In light of the acquisition,shareholders are currently re-evaluating the appropriateness of the firm's capital structure (the types of and relative levels of debt and equity).The two proposals being contemplated are detailed below:
Required:
a.Calculate the estimated return on equity (ROE)under the two proposals.(ROE = net income after taxes / market value of equity; net income after taxes = (EBIT - interest on long-term debt)× (1 - tax rate)).
b.Which proposal will generate the higher estimated ROE?

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Definitions:

ROM Chip

A type of non-volatile storage that permanently stores instructions for hardware initialization. The data on it cannot be modified or can only be modified slowly or with difficulty.

Supercomputers

High-performance computing systems designed for complex computational tasks, often used in scientific and engineering calculations.

UNIX

An operating system originally conceived in 1969 by Ken Thompson and Dennis Ritchie of AT&T’s Bell Labs. In 1974, the UNIX code was rewritten in the standard programming language C. Today there are various commercial versions of UNIX.

BIOS

Basic Input/Output System, a firmware interface that initializes and tests hardware during the startup process, prior to the operating system loading.