You are given the following information concerning a firm: Assets required for operation: $5,700,000 Revenues: $8,900,000 Operating expensesi $8,050,000 Income tax rate: 40% Management faces three possible combinations of financing 1. 100% equity financing 2. a debt financing with a 8% interest rate 3. 70% debt financing with a 8% interest rate 3. What is the net income for each combination of debt and equity financing Round your answers to the nearest dollar, 3 Net Income $ 1. What is the return on equity for each combination of debt and equity financing? Round your answers to one decimal place 1 2 Return on equity c. If the interest rate had been 16 percent instead of 8 percent, what would be the return on equity for each combination of debt and equity finanong Round your answers to one decimal place 2 3 Return on equity d. What is the implication of the use of financial leverage when interest rates change The use of financial leverage is rely to select the return to the common stockholders if the rate of interest is low. If the rate of interest exceeds (after adjusting for taxes the return earned on the borrowed funds, the return to the common stockholders likely to select by the use of financial leverage 2 1 5% debt financing with a 8% interest rate 0% debt financing with a 8% interest rate What is the net income for each combination of debt and equity financing? Round your answers to t 1 2 3 Net Income $ $ . What is the return on equity for each combination of debt and equity financing? Round your answers 1 3 Return on equity % 96 % c. If the interest rate had been 16 percent instead of 8 percent, what would be the return on equity for eac answers to one decimal place. 1 2 3 Return on equity % d. What is the implication of the use of financial leverage when interest rates change? The use of financial leverage is likely the return to the common stockholders if the rate of in adjusting for taxes) the return earned increase ved funds, the return to the common stockholder is Nkely MacBook Air F1 80 F3 DOO OOO ES F6 4 F7 11 NO # $ 4 A 3 % 5 * 6 & 7 8 8 W E R. T T Y U S D F G ng? Round your answers to the nearest dollar. financing? Round your answers to one decimal place. % I would be the return on equity for each combination of debt and equity financing? Round your 9 erest rates change? Sec increase to the common stockholders if the rate of inter decrease the rate of interest exceeds (after the return to the common stockholder is likely to Select by the use of financial leverage. MacBook Air Il F7 FB F9 FO FI F12 C & * 7 8 I 0 9 + II 9 delete U } I o [