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Should the company borrow more money

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Riley-Rocky Roof! Ing, Inc. is a new company that replaces shingled roofs with metal roofs in the Kansas City area. The product is superior, and as a result, sales are going crazy. The company is only two years old and it's return on assets will easily exceed 20% for at least the next four years.

The cost of borrowing funds--which are needed to purchase the equipment needed to meet the growing demand--is 10% before taxes. The company's tax rate is 35 percent. The company's current capital structure is 90% equity, 10% debt, and the total assets are $4 million.

With this information, should the company borrow more money? If so, how much should it borrow, in your opinion? Support your view. There are no right or wrong answers here--there is only the logic you present to support your view.

Reference no: EM132329139

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