Assume you are a buyout fund manager weighing the acquisition of a company for $500 million. You are considering two possible financial structures for this LBO: either 60% Equity, 40% Debt (Low Debt) or 40% Equity, 60% Debt (High Debt). The pre-tax cost of debt (rd) will be 7.00% under either financing plan while the effective corporate tax rate (c) is expected to be 25.0%. Calculate:

a. The net income (NI) and expected after-tax return on equity (A-T ROE) for both the Low Debt and High Debt financing plan If the expected EBIT is $50.0 million.

b. The net income (NI) and expected after-tax return on equity (A-T ROE) for both the Low Debt and High Debt financing