YEAR 1 You start company ABC with 100,000 of your own money and 50,000 from your friends. You borrow 50,000 from a bank. You use the funds to buy 125,000 in equipment, 50,000 in (intermediate) parts and keep 25,000 in a bank account (cash). Show the balance sheet. During your first year in business your profit is 15,000. What's the ROE? Out of this 15,000, you distribute 10,000 in dividends and retain the rest in the company bank account. Show the new balance sheet for year two. YEAR 2 Continue with this new balance sheet. Suppose the second year profit is the same as the first. What's the ROE? You use the entire profit for this second year to purchase 20,000 in additional equipment. You'll need to borrow the difference from your bank. Show the new balance sheet for year three. YEAR 3 Third year profit increases to 18,000. What's the ROE? You pay out all year three profit to owners (dividends). But you take all the cash in the bank account and use it to purchase new equipment. Show the new balance sheet. YEAR 4 Profit increases by 25% from the previous year. But the IRS enters and taxes profits at a 20% rate. Your dividend payout ratio is 50%, what are Before-Tax and After-Tax ROE