Determine the ROE under three models

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Reference no: EM131932778

ABC has accumulated $23 million in assets, operating income of $1.75 million. The tax rate is 35%. It finances 25%, 50% and 75% of its assets with debt at costs of 9%,10& and 12% respectively.

a. Determine the ROE under three models.

b. Which capital structure is best and why?

c. What if EBIT increases by 12% which structure is best as well as ROE?

d. Compare and discuss your overall results.

Reference no: EM131932778

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