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ABC Company has 1.2 million in assets that are currently financed with 100% equity. The company's earnings before interest and tax is 300,000, and its
ABC Company has 1.2 million in assets that are currently financed with 100% equity. The company's earnings before interest and tax is 300,000, and its tax rate is 30%. If ABC changes its capital structure (recapitalizes) to include 40% debt, what is ABC's return on equity (ROE) before and after the change? Assume that the interest rate on debt is 5%. (Note: ROE = net income / shareholders equity
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