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Calculate the expected roe-standard deviation

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A company wants to estimate next year's return on equity under different financial leverage ratios. The total capital is $15 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital structure, and its federal-plus-state tax rate is 40%. The CFO has estimated next year's EBIT for three possible states of the world: $5.7 million with a 0.2 probability, $3.1 million with a 0.5 probability, and $0.6 million with a 0.3 probability. Calculate the expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios. Do not round intermediate calculations.

Debt/Capital ratio is 0.

RÔE =  %

σ =  %

CV = 

Debt/Capital ratio is 10%, interest rate is 9%.

RÔE =  %

σ =  %

CV =

Reference no: EM132412294

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