Exercise 14-1

Green Foods currently has $250,000 of equity and is planning an $100,000 expansion to meet increasing demand for its product. The company currently earns $62,500 in net income, and the expansion will yleld $31,250 in additional income before any interest expense. The company has three options: (1) do not expand, (2) expand and issue $100,000 in debt that requires payments of 11% annual interest, or (3) expand and ralse $100,000 from equity financing. For each option, compute (a) net income and (b) return on equity (Net) Income - Equity). Ignore any income tax effects. (Round "Return on equity" to 1 decimal place.)