Last Year Rosenberg Corp

question 4

Multiple Choice

Last year Rosenberg Corp.had $195,000 of assets,$18,775 of net income,and a debt-to-total-assets ratio of 32%.Now suppose the new CFO convinces the president to increase the debt ratio to 48%.Sales and total assets 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?

• A)4.36%
• B)4.57%
• C)4.80%
• D)5.04%

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Definitions:

Net Operating Income

The total revenue from operations minus the operating expenses, exclusive of taxes and interest, in a different phrasing.

Variable Manufacturing Overhead

Costs of manufacturing that vary directly with the level of production, such as utilities for the manufacturing plant.

Break-even Sales

The amount of revenue needed to cover all fixed and variable costs, resulting in neither profit nor loss.

Southern Division

A geographical or organizational subsection of a company that operates in the southern region.