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The following data currently applies:
* Profit before interest and tax for the current year is $500,000
* Long term debt of $300,000 at a fixed interest rate of 5%
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The additional debt would carry an interest rate of 3%.
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The rate of corporate income tax is 30%.
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B. Interest cover will rise; P/E ratio will fall.
C. Interest cover will rise; P/E ratio will rise.
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Answer: A
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B. Test execution
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Explanation/Reference:
Explanation:
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