Assume that your company, which is just being formed, will require the purchase of

$$4,000,000$ of total assets, and that these assets are expected to produce a basic earnings

power $($BEP$)$ ratio of $18$ percent this year. The firm has two options for financing the

purchase of these assets. The first is to use $100$ percent equity financing $($that is$,$ it will issue

$$4,000,000$ of equity$).$ The second option is to issue some debt, where the debt will have a

before$-$tax cost of $5\mathrm{.}00$ percent. If your company uses debt, it wants to use enough debt to

double its ROE relative to its ROE with $100\%$ equity financing. For example, if your firm

expects an ROE of $5$ percent when it is $100\%$ equity financed, then it wants to earn an ROE

of $10$ percent if debt is used. Assume that the tax rate is $40$ percent for both options.

Determine how much debt your firm will h$$e to use to double its ROE.

$$2,303,030$

$$2,370,370$

$$2,285,714$

$$2,322,581$

$$2,344,828$