You Have Been Hired by a New Firm That Is

question 78

Multiple Choice

You have been hired by a new firm that is just being started.The CFO wants to finance with 60% debt,but the president thinks it would be better to hold the percentage of debt in the capital structure (w_d) to only 10%.Other things held constant,and based on the data below,if the firm uses more debt,by how much would the ROE change,i.e. ,what is ROE_New - ROE_Old? Do not round your intermediate calculations. ​

• A) 10.31%
• B) 11.59%
• C) 10.43%
• D) 9.15%
• E) 10.54%

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Definitions:

Costing Methods

Various approaches used to calculate the cost of inventory and goods sold, such as First-In, First-Out (FIFO), Last-In, First-Out (LIFO), or average cost methods.

Periodic System

An inventory valuation method where inventory counting and valuation are performed at specific intervals.

Ending Inventory

The total cost of all the inventory a business has in stock at the end of an accounting period.

Inventory Costing Methods

These are accounting approaches to determine the value of inventory on hand and the cost of goods sold, including methods like FIFO (First-In, First-Out) and LIFO (Last-In, First-Out).