EBIT was $55 million in 2016, and is expected to remain constant for 2017. The firm is all equity financed, and there are 15 million shares outstanding. The corporate tax rate is 37.5%, the risk-free rate is 3.5% and the market risk premium is 4%. The firm’s beta was estimated at 1.25 by the investment bankers who have also supplied the following estimates of debt costs for different capital structures: At 20 percent debt, the cost of debt would be 6.3%; at 30 percent debt, the cost would be 7.5%; at 40 percent debt, the cost would be 8.7%; at 50 percent debt, the cost would be 10%.

Calculate BEP, ROI, ROE and TIE ratios for the fictitious firm with no debt and for the firm with 50 percent debt financing. Interpret your findings.