As you can calculate, in Year 2 the firm's profit margin is

5%,ROA

is

5.94059%

, and ROE is

10.90909%

. Assume that the firm could have increased its equity multiplier by issuing debt and using the proceeds to repurchase equity (debt increases, equity decreases, and the equity multiplier increases) while holding total assets, total asset turnover, and profit margin constant (assume that interest expense does not change). Calculate how much Long-Term Debt the firm would have to have had in Year 2 in order to have earned an ROE of

12.37%

.\

$295

\

$335

\

$255

\

$315

\

$275

As you can calculate, in Year 2 the firm's profit margin is 5%,ROA is 5.94059%, and ROE is 10.90909%. Assume that the firm could have increased its equity multiplier by issuing debt and using the proceeds to repurchase equity (debt increases, equity decreases, and the equity multiplier increases) while holding total assets, total asset turnover, and profit margin constant (assume that interest expense does not change). Calculate how much Long-Term Debt the firm would have to have had in Year 2 in order to have earned an ROE of 12.37%. $295 $335 $255 $315 $275