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Seattle Health Plans currently uses zero-debt financing. Its operating income (EBIT) is $1M, and pays 40% tax rate. It has $5M in assets (& equity).

Seattle Health Plans currently uses zero-debt financing. Its operating income (EBIT) is $1M, and pays 40% tax rate. It has $5M in assets (& equity). Suppose the firm is considering replacing half of its equity financing with debt @ 8%.

a. What impact would this have on NI,ROI,ROE?

b. Redo with debt @15%

c. What if SHP is a NFP?

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