Question: Ridgefield Enterprises has total assets of 300 million dollar. The company currently has no debt in its capital structure. The firm basic earning power is 15%. The firm is contemplating a recapitalization where it will issue debt at 10% and use the proceeds to buy back shares of the firm's common stock. If the firm proceeds with the recapitalization, its operating income, total assets, & tax rate will remain the same. Which of the following will occur as a result of the recapitalization?
[A] The firm's ROA will decline.
[B] The firm's ROE will increase.
[C] The firm's basic earning power will decline.
[D] Answers A and B are correct.
[E] All of the above answers are correct.