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Top management of Cabo company is considering two alternative capital structures for 2 0 2 5 . The first ( the no debt structure

Top management of Cabo company is considering two alternative capital structures for 2025. The first (the "no debt" structure) would be to have $1,000,000 in assets and $1,000,000 in stockholders' equity, with 40,000 shares outstanding the entire year. This is the structure the company had on December 31,2024. Alternatively, (the "with debt" structure) on January 1,2025, the company could issue $400,000 in debt at 4% interest and immediately use the proceeds to repurchase 20,000 shares of stock for $400,000. The expected amount of net income (ignoring taxes), prior to any interest costs, is $100,000 for 2025.
Assume the company pays dividends on common stock equal to its net income each year. Also, assume the accrued interest on the debt was paid at December 31,2025, and the company has no other debt outstanding at year-end. Also, assume the company has $1,000,000 in assets at both the beginning and the end of 2025.
Compute the company's return on common stockholders' equity and return on assets under both structures. (Round answers to 2 decimal places, e.g.2.66%.)
\table[[Ne Debt,With Debt,],[Return on common stockholders' equity,%,%
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