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Commonwealth Construction (CC) needs $1 million of assets to get started, and it expects to have basic earning power ratio of 35%. own no securities,
Commonwealth Construction (CC) needs $1 million of assets to get started, and it expects to have basic earning power ratio of 35%. own no securities, all of Income will be operating income. If so chooses, CC can finance up to 25% of its assets debt, which will have 7% Interest rate. it chooses to use debtthe Anance using only debt and common equity, so no preferred stock will be used. Assuming a 25% tax rate on taxable income, what is the difference between expected ROE finances these assets with 25% debt versus its expected ROE if it finances these assets entirely with common stock? Round your answer to two decimal places
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