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Southern Physicians, a medical group practice, is just being formed. It will need $ 2 million of total assets to generate $ 3 million in
Southern Physicians, a medical group practice, is just being formed.
It will need $ million of total assets to generate $ million in
revenues. Furthermore, the group expects to have a profit margin
of percent. The group is considering two financing alternatives.
First, it can use allequity financing by requiring each physician to
contribute his or her pro rata share. Alternatively, the practice can
finance up to percent of its assets with a bank loan. Assuming
that the debt alternative has no impact on the expected profit
margin, what is the difference between the expected ROE if the
group finances with percent debt versus the expected ROE if it
finances entirely with equity capital
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