Commonwealth Construction (CC) needs $3 million of assets to get started, and it expects to have a basic earning power ratio of 15 CC will own no securities, so all of its income will be operating income If it so chooses, CC can finance up to 40 of its assets with debt, which will have an 8 interest rate If it chooses to use debt, the firm will finance using only debt and common equity, so no preferred stock will be used Assuming a 30 tax rate on all taxable income, what is the difference between CC's expected ROE if it finances these assets with 40 debt versus its expected ROE if it finances these assets entirely with common stock Round your answer to two decimal places Which of the following statements is most correct The higher its tax rate, the lower a firm's BEP ratio will be, other things held constant The higher the interest rate on its debt, the lower a firm's BEP ratio will be, other things held constant The higher its debt ratio, the lower a firm's BEP ratio will be, other things held constant If a firm's expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, then adding assets and financing them with debt will decrease the firm's expected return on common equity (ROE) If a firm's expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, then adding assets and financing them with debt will raise the firm's expected return on common equity (ROE) Complete the balance sheet and sales information using the following financial data Total assets turnover 1 2x Days sales outstanding 32 5 daysa Inventory turnover ratio 7x Fixed assets turnover 2 5x Current ratio 1 6x Gross profit margin on sales (Sales Cost of goods sold) Sales 30 Calculation is based on a 365 day year Do not round intermediate calculations Round your answer to the nearest cent Balance Sheet Cash Current liabilities Accounts receivable Long term debt 40,000 Inventories Common stock Fixed assets Retained earnings 70,000 Total assets $200,000 Total liabilities and equity Sales Cost of goods sold

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Commonwealth Construction (CC) needs $3 million of assets to get started, and it expects to have a basic earning power ratio of 15%. CC will

Commonwealth Construction (CC) needs $3 million of assets to get started, and it expects to have a basic earning power ratio of 15%. CC will own no securities, so all of its income will be operating income. If it so chooses, CC can finance up to 40% of its assets with debt, which will have an 8% interest rate. If it chooses to use debt, the firm will finance using only debt and common equity, so no preferred stock will be used. Assuming a 30% tax rate on all taxable income, what is the difference between CC's expected ROE if it finances these assets with 40% debt versus its expected ROE if it finances these assets entirely with common stock? Round your answer to two decimal places.

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Which of the following statements is most correct?

The higher its tax rate, the lower a firm's BEP ratio will be, other things held constant.
The higher the interest rate on its debt, the lower a firm's BEP ratio will be, other things held constant.
The higher its debt ratio, the lower a firm's BEP ratio will be, other things held constant.
If a firm's expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, then adding assets and financing them with debt will decrease the firm's expected return on common equity (ROE).
If a firm's expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, then adding assets and financing them with debt will raise the firm's expected return on common equity (ROE).

Complete the balance sheet and sales information using the following financial data: Total assets turnover: 1.2x Days sales outstanding: 32.5 daysa Inventory turnover ratio: 7x Fixed assets turnover: 2.5x Current ratio: 1.6x Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 30% Calculation is based on a 365-day year. Do not round intermediate calculations. Round your answer to the nearest cent. Balance Sheet Cash Current liabilities Accounts receivable Long-term debt 40,000 Inventories Common stock Fixed assets Retained earnings 70,000 Total assets $200,000 Total liabilities and equity Sales Cost of goods sold