You Have Been Given the Attached Information on the Crum

Multiple Choice

You have been given the attached information on the Crum Company. Crum expects sales to grow by 50 percent in the next year and operating costs should increase in proportion to sales. Fixed assets were being operated at 40 percent of capacity in the most recent year, but all other assets were used to full capacity. Underutilized fixed assets cannot be sold. Current assets and spontaneous liabilities should increase in proportion to sales during the next year. The company plans to finance any external funds needed as 35 percent notes payable and 65 percent common stock. The interest rate is 8 percent; base interest expense on the debt at the beginning of the year (cash earns no interest income) . The dividend payout ratio will remain constant, irrespective of how many shares of stock are outstanding. What is Crum's projected ROE using the percentage of sales method? (Ignore any financing feedback effects.)

A) 16.98%
B) 23.73%
C) 25.68%
D) 19.99%
E) 23.24%