A company needs a capital of $200,000. It has 9,000 shares outstanding and has the following information:

Price/ Unit $5

Variable cost/Unit $2

Fixed costs $50,000

Price/Share $30

Tax rate 40%

The expected units sold based on probability of economic situation:

Economy Probability Units Sold

Good 0.2 140,000

Normal 0.5 80,000

Bad 0.3 10,000

The company can either stay without debt or have a debt ratio (D/A) of 60% with a 12% interest rate.

11. If the company decides to have a 60% debt ratio, its ROE in a normal economic situation is *

a. 1.317%

b. $2.416

c. 3.27%

d. $1.317

e. None of the above

12. If the company decides to be 60% leveraged, its EPS in a bad economic situation would be *

a. -2.29%

b. -$20,640

c. -$1.33

d. -$2.29

e. None of the above

13. If the company was unleveraged, its EPS in a good economic situation would be *

a. $12.67

b. 12.67%

c. 24.67%

d. 14.2%

e. None of the above

14. If the company has no debt, its expected ROE would be *

a. 0.31

b. 0.49

c. 0.62

d. 0.049

e. None of the above

15. If the company has a 60% debt ratio, its expected ROE would be *

a. 48.9%

b. 1.1145

c. 9.9

d. 0.099

e. None of the above

16. If the company carries no debt, its Expected EPS is *

a. 10.87%

b. 9.9%

c. $9.9

d. $10.87

e. None of the above

17. If the company has a 60% debt ratio, its Expected EPS is *

a. 10.87%

b. $9.9

c. $10.87

d. 9.9%

e. None of the above

18. If D/A ratio is 60%, the standard deviation of the companys ROE would be *

a. 1.033

b. 0.413

c. 0.565

d. 0.489

e. 10.4

19. If D/A ratio is 0%, the standard deviation of the companys EPS is *

a. 9.184

b. 10.654

c. 7.245

d. 10.87

e. None of the above