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Last year Ann Arbor Corp had $125,000 of assets (which equals total invested capital), $305,000 of sales, $21,000 of net income, and a debt-to-total-capital ratio
Last year Ann Arbor Corp had $125,000 of assets (which equals total invested capital), $305,000 of sales, $21,000 of net income, and a debt-to-total-capital ratio of 37.5%. The new CFO believes that a new computer program will enable the company to reduce costs and thus raise net income to $33,000. The firm finances using only debt and common equity. Assets, total invested capital, sales, and the debt-to-capital ratio would not be affected. By how much would the cost reduction improve the ROE? Do not round your intermediate calculations. O a. 20.48 p.p. b. 9.60 p.p. c. 15.36 p.p. d. 26.88 p.p. O e. 25.60 p.p
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