What is difference between ccs expected roe if it finances


Commonwealth Construction (CC) needs $1 million of assets to get started, and it expects to have a basic earning power ratio of 30%. CC will own no securities, so all of its income will be operating income. If it so chooses, CC can finance up to 40% of its assets with debt, which will have an 7% interest rate. If it chooses to use debt, the firm will finance using only debt and common equity, so no preferred stock will be used. Assuming a 35% tax rate on all taxable income, what is the difference between CC's expected ROE if it finances these assets with 40% debt versus its expected ROE if it finances these assets entirely with common stock? Round your answer to two decimal places.

Request for Solution File

Ask an Expert for Answer!!
Financial Management: What is difference between ccs expected roe if it finances
Reference No:- TGS02761310

Expected delivery within 24 Hours