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Green Foods currently has $200,000 of equity and is planning an $80,000 expansion to meet increasing demand for its product. The company currently earns
Green Foods currently has $200,000 of equity and is planning an $80,000 expansion to meet increasing demand for its product. The company currently earns $70,000 in net income, and the expansion will yield $35,000 in additional income before any interest expense. The company has three options: (1) do not expand, (2) expand and issue $80,000 in debt that requires payments of 11% annual interest, or (3) expand and raise $80,000 from equity financing. For each option, compute (a) net income and (b) return on equity (Net Income Equity). Ignore any income tax effects. Note: Round "Return on equity" to 1 decimal place. Income before interest expense Interest expense Net income Equity Return on equity 1 Don't Expand 2 Debt Financing 3 Equity Financing % % %
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