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ROE and recapitalization At the beginning of the year you invest $40,000 of your own money plus $40,000 that you borrowed at 8% interest to
ROE and recapitalization At the beginning of the year you invest $40,000 of your own money plus $40,000 that you borrowed at 8% interest to purchase $80,000 worth of Gofast stock, which earns a retum of 13%. You pay taxes on the money you make on the stock at the rate of 20%, but you can deduct the interest you pay on your loan from your stock income before calculating your tax bill. a. Calculate your net after-tax retum on these positions. b. What would your after-tax return have been if you had never borrowed money and had invested just $40,000 in GoFast stock? a. Your net after-tax retum on these positions is \%. (Round to two decimal places.) b. If you had never borrowed money and had invested just $40,000 in GoFast stock, your after-tax return on these positions would have been \%. (Round to two decimal places.) MACRS RATE A. $840 tax liability B. \$0 tax liability C. $3,160 tax benefit D. $3,160 tax liability
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