Multiple choice Q

Loki Revengers has expected sales of $650 million a year. Variable costs are expected to be 65 percent of sales and fixed operating costs are $200000000 a year. Total capital is presently $500000000 and must be expanded to $700000000 to generate the anticipated sales level. The company presently has no debt outstanding, and 2670000 shares of stock. Additional common stock could be sold for $150 a share. The interest rate on new debt would be 6 percent and the tax rate is 21 percent. Compute the return on equity and earnings per share assuming the expansion is financed: Sales of $650 million, Var. cost of 65% of sales, Fixed cost of $200000000 per year, new capital needed $200000000 ($700000000 - $500000000), number of shares 2670000 shares, stock price of $150, interest expense of 6%, tax of 21%, assume no preferred dividends. a. exclusively with debt, b. exclusively with equity and c. with one-half debt and one-half equity.

Calculate return on equity (ROE) and earnings per share (EPS) if expansion is financed by debt.

Group of answer choices

3.1%; $5.43

4.35%; $8.14

2.45%; $4.59

3.23%; $5.8

2.04%; $3.67