Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

the company has sale of $3003000 and operating cost of $267000, and net asset at the end of the year $195000, total debt to asset

the company has sale of $3003000 and operating cost of $267000, and net asset at the end of the year $195000, total debt to asset ratio is .7%. The interest rate on the debt is 8.2% and tax rate is 37%. The firm want to see how the return on equity would have been affected if the firm has the debt ratio of the 45% rather than 27%. Assume sale, total asset are not affect and the interest rate and tax rate are remain constant. By how much would the return on equity change is responding to change in debt ratio?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Future For Investors

Authors: Jeremy Siegel

1st Edition

140008198X, 978-1400081981

More Books

Students also viewed these Finance questions