12. Last year, Banda Corporation had $250,000 of assets (which equaled its total invested capital), $18,750 of net income, and a debt-to-total-capital ratio of 37%. Now, suppose that the new CFO convinced the president to increase the debt-to-total-capital ratio to 48%. Sales, total assets, and total invested capital would not be affected, but interest expenses would increase. However, the CFO believed that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the return on common equity (ROE) improve as a result of the change in the capital structure? Do not round your intermediate calculations. *
5 points
2.52%
11.00%
11.90%
14.42%
None of the above
13. Last year, Yukon Company reported $10,500,000 of sales, $6,250,000 of operating costs (excluding depreciation), and $1,300,000 of depreciation. The company had $5,000,000 of bonds that carried a 6.5% interest rate, and its federal-plus-state income tax rate was 35%. This year's data were expected to remain unchanged except for one item, depreciation, which was expected to increase by $630,000. The company uses the same depreciation calculations for tax and stockholder reporting purposes. By how much would the net income change as a result of the change in depreciation? *
5 points
The net income would decrease by $409,500
The net income would decrease by $220,500
The net income would decrease by $630,000
The net income would decrease by $1,296,750
None of the above
