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Consider the following case: Mammoth Pictures Inc. is a small company and is considering a...

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Finance

Consider the following case:

Mammoth Pictures Inc. is a small company and is considering a project that will require $500,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 25%. What will be the ROE (return on equity) for this project if it produces an EBIT (earnings before interest and taxes) of $160,000?

18.00%

24.00%

26.40%

25.20%

Determine what the projects ROE will be if its EBIT is $50,000. When calculating the tax effects, assume that Mammoth Pictures Inc. as a whole will have a large, positive income this year.

-9.00%

-7.12%

-8.62%

-7.5%

Mammoth Pictures Inc. is also considering financing the project with 50% equity and 50% debt. The interest rate on the companys debt will be 10%. What will be the projects ROE if it produces an EBIT of $160,000?

40.50%

44.55%

42.53%

34.42%

What will be the projects ROE if it produces an EBIT of $50,000 and it finances 50% of the project with equity and 50% with debt? When calculating the tax effects, assume that Mammoth Pictures Inc. as a whole will have a large, positive income this year.

-24.75%

-22.50%

-28.12%

-29.25%

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