Last Year Jandik Corp

question 2

Multiple Choice

Last year Jandik Corp.had $250,000 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? Do not round your intermediate calculations.

• A) 1.94%
• B) 2.07%
• C) 2.57%
• D) 2.52%
• E) 1.96%

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Definitions:

Left-handed

Refers to individuals who predominantly use their left hand for activities such as writing and eating.

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The preference for using the right hand for tasks and activities, a characteristic found in the majority of the population.

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The height above a fixed reference point, often the surface of the Earth.