Non-toxic-toys currently has $400,000 of equity and is planning a $160,000 expansion to meet increasing demand for its product. The company currently earns $100,000 in net income and the expansion will yield $50,000 in additional income before any interest expense. The company has 3 options; do not expand, expand and issue $160,000 in debt that requires 8% annual interest, or expand and raise $160,000 from equity financing.

For each of the 3 options compute a) net income, b) return on equity.