For the Coming Year, Crane Inc

question 68

Multiple Choice

For the coming year, Crane Inc.is considering two financial plans.Management expects sales to be $301, 770, operating costs to be $266, 545, assets to be $200, 000, and its tax rate to be 35%.Under Plan A it would use 25% debt and 75% common equity.The interest rate on the debt would be 8.8%, but the TIE ratio would have to be kept at 4.00 or more.Under Plan B the maximum debt that met the TIE constraint would be employed.Assuming that sales, operating costs, assets, the interest rate, and the tax rate would all remain constant, by how much would the ROE change in response to the change in the capital structure?

• A) 3.83%
• B) 4.02%
• C) 4.22%
• D) 4.43%
• E) 4.65%

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Definitions:

Gender

Social and cultural distinctions associated with being male, female, or non-binary, rather than strictly biological differences.

Socially Constructed

Referring to concepts, values, or practices that exist because of collective human agreement, rather than being inherent or natural to reality.

Cross-cultural Personality

The study of how personality traits and behaviors vary across different cultures.

Margaret Mead

An influential American cultural anthropologist known for her studies and publications on cultural patterns and personality development in Samoa and New Guinea.