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Compute net income and return on equity

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Frenza is planning an $160,000 expansion to launch a new product line. Frenza currently earns $100,000 in net income, and the new product line will yield $50,000 in additional income before any interest expense. Frenza has three options:

(1) do not expand,

(2) expand and issue $160,000 in debt that requires payments of 8% annual interest, or

(3) expand and raise $160,000 from equity financing.

Question 1: For each option 1, 2, and 3, compute net income and return on equity (Net income ÷ Equity). Ignore any income tax effects.

Reference no: EM132503314

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