16. Lowell Corp. is an all-equity firm with $820,000. It nowwants to issue debt and raise the debt ratio to 0.40 from 0.0without changing total assets. It plans to use the proceeds of thedebt issue to retire some equity using a share repurchase. How muchcash should Lowell borrow?

a.           $228,000

b.           $288,000

c.           $328,000

d.           $388,000

e.           $492,000

17. Nashua Inc.'s debt ratio is .25. That is, for every $100 oftotal assets, it has borrowed $25. What would be the value of itsequity multiplier to use in a DuPont equation? Hint: You might needto work out the equation for equity multiplier from the debt ratioequation!

a.           0.25

b.           1.00

c.           1.25

d.           1.33

e.           4.00

18. XYZ Corp.'s sales last year were $300,000, and its netincome was $20,000. What was its profit margin?

a. 6.67%

b. 7.66%

c. 8.21%

d. 8.63%

e. 9.06%

19. ABC Corp. is an all equity firm with total assets of$400,000, with sales of$600,000 and net income of $25,000.Management wants to lower costs to increase ROE to around 15%. Theydo not plan on changing sales or issuing debt. What profit marginwould be needed to achieve this higher ROE? Hint: DuPont Equation -What is equity multiplier here?

a.           9.45%

b.           9.85%

c.           10.00%

d.           10.45%

e.           10.85%

20. Weston Industries had soles of $300,000, assets of $175,000,a profit margin of 5.2%, and an equity multiplier of 1.2. The CFObelieves that the company could reduce its assets by $50,000without affecting either sales or costs. Had it reduced its assetsby this amount, and had the debt/assets ratio, sales, and costsremained constant, how much would the ROE have changed? Hint: FirstCalculate ROE for the present amount of assets – Does the profitmargin change after the reduction in assets?

a. 4.28%

b. 4.56%

c. 5.01%

d. 5.52%

e. 6.07%