Laserscope Inc

Multiple Choice

Laserscope Inc.is trying to determine the best combination of short-term and long-term debt to employ in financing its assets.Laserscope will have $16 million in current assets and $20 million in fixed assets next year and expects operating income (EBIT) to be $4.1 million.The company's tax rate is 40% and its debt ratio is 50%.The firm's debt will be financed by one of the following policies:

What is the return on shareholder's equity under each policy?

A) aggressive = 12.70% & conservative = 12.22%
B) aggressive = 8.47% & conservative = 8.14%
C) aggressive = 4.23% & conservative = 4.07%
D) aggressive = 7.67% & conservative = 8.81%