Question
A company currently has $257,000 of equity and is planning a $107,000 expansion. The company currently earns $77,100 in net income, and the expansion will
A company currently has $257,000 of equity and is planning a $107,000 expansion. The company currently earns $77,100 in net income, and the expansion will yield $42,000 in additional income before any interest expense. The company is considering three separate options: (1) do not expand, (2) expand and issue $107,000 in debt that requires payments of 10% annual interest, or (3) expand and raise $107,000 from equity financing. For each option compute (a) net income and (b) return on equity (Net income Equity). Note: Amounts to be subtracted should be indicated with a minus sign. Round "Return on equity" to 1 decimal place.
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