Your Company,which Is Financed Entirely with Common Equity,plans to Manufacture

question 88

Multiple Choice

Your company,which is financed entirely with common equity,plans to manufacture a new product,a cell phone that can be worn like a wristwatch.Two robotic machines are available to make the phone,Machine A and Machine B.The price per phone will be $250.00 regardless of which machine is used to make it.The fixed and variable costs associated with the two machines are shown below,along with the capital (all equity) that must be invested to purchase each machine.The expected sales level is 33,000 units.Your company has tax loss carry-forwards that will cause its tax rate to be zero for the life of the project,so T = 0.How much higher or lower will the project's ROE be if you select the machine that produces the higher ROE,i.e. ,what is ROE_B - ROE_A? (Hint: Since the firm uses no debt and its tax rate is zero,ROE = EBIT/Required investment. ) ​

• A) 20.97%
• B) 15.77%
• C) 19.76%
• D) 16.29%
• E) 17.33%

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Definitions:

Parasympathetic Nervous System

A division of the autonomic nervous system responsible for conserving energy and restoring the body to a resting state after periods of stress or danger.

Insula

A portion of the cerebral cortex folded deep within the lateral sulcus (the grove separating the temporal lobe from the rest of the cortex) involved in the processing of emotions, bodily sensations, and autonomic control.

Parasympathetic Nervous System

Part of the autonomic nervous system responsible for rest and digestion, counterbalancing the sympathetic nervous system.

Sympathetic Nervous System

A part of the autonomic nervous system responsible for the body's 'fight or flight' response during stressful or threatening situations.