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Seattle health plans currently uses zero debt financing. Its operating income is $1 million and it pays taxes at a 40% rate. It has $5
Seattle health plans currently uses zero debt financing. Its operating income is $1 million and it pays taxes at a 40% rate. It has $5 million in assets and because it is all equity financed, $5 million in equity. Suppose the firm is considering replacing half of its equity financing with debt financing bearing an interest rate of 8%. ONLY part d requested A. What impact would the new capital structure have on the firms net income, total dollar rerun to investors and ROE? D. Repeat the analysis in part A but now assume that Seattle health plans is a not for profit corp. and pays no taxes
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