What is the difference between CCs expected ROE

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Point 1: Commonwealth Construction (CC) reeds 52 million of assets to get started, and it expects to have a basic earning power ratio of 15%. CC will own no securities, all of its income will be operating income. If it so chooses, CC can finance up to 350/0 of its assets with debt, which will have a 9% interest rate. If it chooses to use debt, the firm will finance using only debt and common equity, so no preferred stock will be used.

Question 1: Assuming a 2S% tax rate on taxable income, what is the difference between CCs expected ROE if it finances these assets with 350/0 debt versus its expected ROE if it finances these assets entirely with common stock? Round your answer to two decimal places.

 

Reference no: EM132482718

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