FRI in the blanks after the question marks in the fellewing example, which is an example of homemade leverage. Hint: the firm's capital structure does not matter tostockinwestor who uses homemade leverage. Currentiy, Firm A is an all-equity firm. The assets are $1,000,000,the number of shares outstanding is 10,000, and the stock price is S Now some people propothat the firm should consider borro sont debt. Te proposed plan is to maintain the ame assets level but une $500,000 debt. The stock price thould nemain the same, since there is no sudden change in per share nature of the business Assume A's interest rate on its egardlens of the two capital structures, there are only three scenanios in the economy recession, expected (neutral), and expansion In these three scenanios, Firm A's EBIT wil be 5100,000, 5200,000, and 5300,000, respectively. An investor in Farm A's stock can use homemade leverage to make himelf indifferent to the current or the proponed capital structure, because he can make his personal ROE the same as Fim A's RCE under either capital structure Even under the current capital structure, the investor can use the following steps to make his personal ROEs the same as the ROEs under the proposed capital structure: (1) borrow S500 also at 5% interest rate per year, and (2) use this debt and his own $500 to buy as many shares of stock as possible. What is his personal debt-equity ratio now Table 1. Firm A's capital structures Current 1,000,000.00 EPS under current capital structure Earnings on stock purchase Interest on debt Net profit ROE Equity Debt-equity ratio 5% shares outstanding Share price Table 2. Firm A's ROEs under the current capital structure Table 5. The stock investor's ROEs under the proposed capital structure Even under the proposed capital structure, the investor can use the following steps to make his personal ROEs the same as the ROEs under the current capital structure: (1) use $500 to buy as many shares of stock as possible, and (2) lend $500 out to other people at 5% interest rate per year 100,000.00 200,000.00 300,000.00 Net income What is his personal debt-equity ratio now EPS under proposed capital structure Earnings on stock purchase Plus interest on lending Net profit ROE Table 3. Finm A's RCEs under the propssed capital structure EBIT 100,000.00 200,000.00 300,000.00 ROt Table 4. The stock investor's ROEs under the current capital structure FRI in the blanks after the question marks in the fellewing example, which is an example of homemade leverage. Hint: the firm's capital structure does not matter tostockinwestor who uses homemade leverage. Currentiy, Firm A is an all-equity firm. The assets are $1,000,000,the number of shares outstanding is 10,000, and the stock price is S Now some people propothat the firm should consider borro sont debt. Te proposed plan is to maintain the ame assets level but une $500,000 debt. The stock price thould nemain the same, since there is no sudden change in per share nature of the business Assume A's interest rate on its egardlens of the two capital structures, there are only three scenanios in the economy recession, expected (neutral), and expansion In these three scenanios, Firm A's EBIT wil be 5100,000, 5200,000, and 5300,000, respectively. An investor in Farm A's stock can use homemade leverage to make himelf indifferent to the current or the proponed capital structure, because he can make his personal ROE the same as Fim A's RCE under either capital structure Even under the current capital structure, the investor can use the following steps to make his personal ROEs the same as the ROEs under the proposed capital structure: (1) borrow S500 also at 5% interest rate per year, and (2) use this debt and his own $500 to buy as many shares of stock as possible. What is his personal debt-equity ratio now Table 1. Firm A's capital structures Current 1,000,000.00 EPS under current capital structure Earnings on stock purchase Interest on debt Net profit ROE Equity Debt-equity ratio 5% shares outstanding Share price Table 2. Firm A's ROEs under the current capital structure Table 5. The stock investor's ROEs under the proposed capital structure Even under the proposed capital structure, the investor can use the following steps to make his personal ROEs the same as the ROEs under the current capital structure: (1) use $500 to buy as many shares of stock as possible, and (2) lend $500 out to other people at 5% interest rate per year 100,000.00 200,000.00 300,000.00 Net income What is his personal debt-equity ratio now EPS under proposed capital structure Earnings on stock purchase Plus interest on lending Net profit ROE Table 3. Finm A's RCEs under the propssed capital structure EBIT 100,000.00 200,000.00 300,000.00 ROt Table 4. The stock investor's ROEs under the current capital structure