3. 5pt - Last year, firm ABC had $125,000 of assets (which equals total invested...
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3. 5pt - Last year, firm ABC had $125,000 of assets (which equals total invested capital), $300,000 of sales, $20,000 of net income, and a debt-to-total-capital ratio of 37.5%. The new CFO believes that a new initiative will enable the company to reduce costs and thus raise net income to $30,000. 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 return on total equity (ROE)
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