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You are the financial manager of Lineware Company and attempting to optimize Lineware's capital structure for the next year. Currently capital structure is 40% debt
You are the financial manager of Lineware Company and attempting to optimize Lineware's capital structure for the next year. Currently capital structure is 40% debt and 60 equity. Company's CEO thinks that 60% debt 40% equity will be more beneficial and increase ROE. He suggests borrowing additional ST debt, get project credit, while LT debt stays the same. Above Balance sheets demonstrate both alternatives. EBIT is $8 million, and corporate tax rate is 20%. Please calculate ROE under both alternatives and evaluate the results. Do you agree with the consultant? If not, what would you suggest about funding alternatives and capital structure
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