How much would the roe change in response to the change

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Reference no: EM1395931

Q. Quigley Inc. is a considering two financial plans for the coming year. Management expects sales to be 300000; operating costs to be 265000 assets to be 200000 also its tax rate is 35%. Under plan A it would use 25% debt also 75% common equity. The interest rate on the debt would be 8.8%, but under a contract with existing bond holders the TIE ratio would have to be maintained at or above 4.0. Under plan B, the maximum debt which met the TIE constraint would be employed. Assuming which sales operating costs assets the interest rate also the tax rate would all remain constant by how much would the ROE change in response to the change in capital structure.

Reference no: EM1395931

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