Problem
RETURN ON EQUITY
Commonwealth Construction (CC) needs $3 million of assets to get started, and it expects to have a basic earning power ratio of 25%. co will own no securities, so al of its income will be operating income.
If it so chooses, cc can up to 30% of ts assets with debt, which will have an 11% interest rate. Ir t dooses to use debt, the firm will finance using only debt and common equity, so no preferred stock will be used.
Assuming a 30% rate on all taxable income, what is the difference between ccs expected ROE if it finances these assets with 30% debt versus Its expected Roe if finances these assets entirely with common Round your answer to two decimal places.