QUESTION 1

1. You are given the following information for Merrimack, Inc.

   Sales	240,000
   Debt	120,000
   Dividends	5,000
   Equity	30,000
   Interest rate	7%
   Net income	16,000
   Tax rate	30%

   Assume the company has no short-term debt. Also assume that all asset turnover, profit margin, and dividend payout ratios remain constant. (Hint: First prepare income statement working backwards from the bottom to find EBIT.) What is the companys basic earning power (BEP)?

   	A.	30.06%
   	B.	27.76%
   	C.	25.87%
   	D.	24.30%
   	E.	22.97%
   	F.	21.83%
   	G.	20.84%
   	H.	19.97%