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Chicago Pizza Co. needs $415,000 to expand. Compute the effect on the return on equity based on the different mix of debt and equity financing,

Chicago Pizza Co. needs $415,000 to expand. Compute the effect on the return on equity based on the different mix of debt and equity financing, given an operating income of $120,000. Assume borrowing costs of 12% and a tax rate of 22%. If Chicago Pizza finances 100% with equity, what is the return on equity?

Select one:

a. 22.55%

b. 36.74%

c. 20.63%

d. 19.81%

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