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Which option will provide the greatest return on equity

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Question - Bubba Gump, Inc. currently has $200,000 of equity. Gump plans an $80,000 expansion to meet increasing demand for its product. According to its latest Income Statement, Gump earns $50,000 in Net Income. Gump's management accountants predict that the expansion will yield $25,000 in additional income before any interest expense. Gump has three options. Which option will provide the greatest return on equity for Gump?

a. Do not expand.

b. Expand and issue $80,000 in debt that requires payments of 8% interest

c. Expand and raise $80,000 from equity financing.

d. None of the above.

Reference no: EM132768953

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