1. LSP Construction recently reported $200 million of sales, $120 million of operating costs other than depreciation, and $80 million of depreciation. It had $10 million interest expense, and its federal-plus-state income tax rate was 40%. What was LSP operating income, or EBIT, in millions?*

$ 80

$ (10)

$ 0

$(6)

None of the above

2. LSP is going to invest $1,000,000 in assets to start its new project, and it expects to have a BEP ratio of 20%. LSP plans to have no securities, so all of its income will be operating income. Therefore, LSP can finance up to 50% of its assets with debt, which will have an 8% interest rate. Assuming a 40% tax rate, what is the difference between LSP's expected ROE if it finances with 50% debt versus its expected ROE if it finances its project purely with common stock?*

19.2%

12.2%

8%

7.2%

None of the above

3. For its most recent year, a company's net income is $600,000. The applicable tax rate is 40% and the average annual interest rate is 8%. The bonds outstanding portfolio is $1,500,000 and the equity outstanding portfolio is $2,500,000. Depreciation and amortization equals $150,000. What is the times interest earned ratio for the company (in times)?*

8.3

5

9.3

7.3

None of the above