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E Sewell Corp, has no debt outstanding and a total market value of $575,000. Earnings before interest and taxes, EBIT, are projected to be $44,750. The company is considering a $110,000 debt issue with an interest rate of 8.5%. The proceeds will be used to repurchase shares of stock. Ignore taxes for this problem. What is the company's expected return on equity after the change in the capital structure? A 7.61% B 8.15% 9.62% 6.47% 6.16%

E Sewell Corp, has no debt outstanding and a total market value of $575,000. Earnings before interest and taxes, EBIT, are projected to be $44,750. The company is considering a $110,000 debt issue with an interest rate of 8.5%. The proceeds will be used to repurchase shares of stock. Ignore taxes for this problem. What is the company's expected return on equity after the change in the capital structure? A 7.61% B 8.15% 9.62% 6.47% 6.16%

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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E Sewell Corp, has no debt outstanding and a total market value of $575,000. Earnings before interest and taxes, EBIT, are projected to be $44,750. The company is considering a $110,000 debt issue with an interest rate of 8.5%. The proceeds will be used to repurchase shares of stock. Ignore taxes for this problem. What is the company's expected return on equity after the change in the capital structure? A 7.61% B 8.15% 9.62% 6.47% 6.16%
Transcribed Image Text:E Sewell Corp, has no debt outstanding and a total market value of $575,000. Earnings before interest and taxes, EBIT, are projected to be $44,750. The company is considering a $110,000 debt issue with an interest rate of 8.5%. The proceeds will be used to repurchase shares of stock. Ignore taxes for this problem. What is the company's expected return on equity after the change in the capital structure? A 7.61% B 8.15% 9.62% 6.47% 6.16%
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