In 2020, ABC corporation had sales revenue of $313,500, operating costs of $275,750, and year-end assets of $205,000. The debt-to-total-assets ratio was 25%, the interest rate on the debt was 7.5%, and the firm's tax rate was 35%. In 2021, the firm aims to use additional debt financing and increase the debt-to-total-assets ratio to 50%. Assuming that sales and total assets will not be affected, and that the interest and tax rate will both remain constant, by how much value will the ROE change in response to change in the capital structure? (Round to TWO decimals for only ROE and change in ROE, the last two rows; for the remaining values, roundup.) 2020 2021 Total Debt 24 Interest Expense S 2$ Total Equity 2$ Net Income %24 96 Returm on Equity Change in ROE
In 2020, ABC corporation had sales revenue of $313,500, operating costs of $275,750, and year-end assets of $205,000. The debt-to-total-assets ratio was 25%, the interest rate on the debt was 7.5%, and the firm's tax rate was 35%. In 2021, the firm aims to use additional debt financing and increase the debt-to-total-assets ratio to 50%. Assuming that sales and total assets will not be affected, and that the interest and tax rate will both remain constant, by how much value will the ROE change in response to change in the capital structure? (Round to TWO decimals for only ROE and change in ROE, the last two rows; for the remaining values, roundup.) 2020 2021 Total Debt 24 Interest Expense S 2$ Total Equity 2$ Net Income %24 96 Returm on Equity Change in ROE
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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