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Assume that a firm has EBIT of $192,000.00, total assets of $800,000.00, a tax rate of 40 percent, a before-tax cost of debt of 12.0
Assume that a firm has EBIT of $192,000.00, total assets of $800,000.00, a tax rate of 40 percent, a before-tax cost of debt of 12.0 percent, and a return on equity (ROE) of 16.80 percent. [Note: you should now be able to back out the firm's D/E ratio and its current level of debt using the relationship between BEP and ROE.] Given this information, determine what the firm's return on equity will be if it doubles the amount of debt (still at a 12.0 percent rate) and uses the proceeds to repurchase equity. Q 21.60% 0 16.12% O 20.23% O 18.86% O 17.49%
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