Question
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:
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 5,000Step by Step Solution
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