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K & L company has a capital of $1,000,000 with a debt ratio of 70% and paying interest for 10% . It has 15,000 shares

K & L company has a capital of $1,000,000 with a debt ratio of 70% and paying interest for 10% . It has 15,000 shares outstanding that are expected to stay constant and it has the following information:

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1. The ROE in a bad economic situation would be *

a. 34%

b. -34%

c. $34

d. 10%

e. None of the above

2. The EPS in a normal economic situation would be *

a. -17.2%

b. -$17.2

c.-$11.33

d. $17.2

None of the above

3. The expected ROE would be *

a. 5%

b. -8%

c. 9.9%

d.11%

e. None of the above

4. The expected EPS would be *

a.1.6%

b.$-1.6

c.$1.6

d.-1.6%

e.None of the above

5. The risk in the ROE would be *

a.10%

b.66%

c.-10%

d.-6.6%

e. None of the above

6. The risk in the EPS would be *

a. $20

b. $13.2

c. 20%

d. $20.22

e. None of the above

+ Price/ Unit $100 Variable cost/Unit $40 Fixed costs $400,000 Tax rate 40% The expected units sold based on probability of economic situation: Economy Good Normal Bad Probability 0.1 0.2 0.7 Units Sold 20,000 15,000 5,000

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