Garrett Camp and Travis Kalanick are the founders of Uber.Assume that the company currently has $250,000 in equity and is considering an expansion to meet increased demand.The $100,000 expansion would yield $16,000 in additional income before interest expense.Assume that the company currently earns $40,000 annual income before interest expense of $10,000, yielding a return of equity of 12% ($30,000/$250,000).To fund the expansion, the company is considering issuing a 10-year, $100,000 note with annual interest payments (the principal due at the end of 10 years).

Using return of equity as the decision criterion, show computations to support or reject the expansion if interest on the note is (a) 10%, (b) 15%, (c) 16%, (d) 17%, (e) 20%?

What general rule do the results in part 1 illustrate?