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Hugh Brokett's Insurance provides the following data (EBIT is earnings Before Interest and Taxes)

  • EBIT = $32,000
  • Tax Rate = 250%
  • Assets = $240,000

A. It's assets are currently 100% equit financed (no debt). What is Hugh Brokett's current ROE?

B. If they replace 60% of the equity with debt financing at an interest rate of 12%, what is their ROE?

C. What advice would you give Hugh Brokett regarding the addition of debt to their capital structure?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M938537

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