A firm decides to use debt to raise its return on equity

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A firm decides to use debt to raise its return on equity. It currently has sales of $2 million, total assets of $1 million and a debt ratio of 20%. It's net profit margin has been 10% and it expects it to stay there into the future. If it borrows an additional $100,000 and invests in new equipment, what will be its new ROE given it has no change in the NPM and its sales increase by 5%? What was its original ROE? What is its new net income?

Reference no: EM13805576

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