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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 6% 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 6% interest to purchase $80,000 worth of GoFast stock, which earns a return of 14%. You pay taxes on the money you make on the stock at the rate of 28%, 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 return 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 return 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.)
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