Question

Determine what the project’s ROE will be if its EBIT is –$55,000. When calculating the tax effects, assume that Flowers by Irene Inc. as a whole will have a large, positive income this year.

a. -8.62%
b. -7.5%
c. -7.87%
d. -6.75%

Answer 1

-5.96%

Step-by-step explanation:

The adjusted EBIT for tax purposes=-$55,000*(1-t)

t is the is the tax rate applicable which is 35% as contained in the attached

adjusted EBIT=-$55,000(1-35%)=-$35750

ROE =return on equity/initial outlay

return on equity is -35750

initial capital outlay is $600,000

ROE= -$35750 /$600,000=

The correct answer is -5,96% which is not available as of one of the options listed in question