ACE is an all equity firm that is contemplating changing their capital structure to 30% debt 70% equity. Their current financial scenario is below.

What is their current EPS? ROA? ROE?

			Tax	40%
Current		Debt/equity	0%	100%
Assets	30,000	EBIT	6,000	ROA
Debt	-	Interest	-
Equity	30,000	EBT		ROE
Proposed Int Rate	0.06	Tax
Shares Outs	1,200	EAT
Share price	25	EPS

Continuing with ACE, if they change to a 30-70 debt/equity capital structure their EPS will change to $3.90

True

False

Continuing with ACE, if they go forward with the proposed debt/equity change their ROA will increase and ROE will decrease.

True

False