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Problem:

Company A has $1.2 million in assets that are currently financed with all equity. The firm's EBIT is $300,000. The corporate tax rate is 30%. Assume that the interest rate on debt is 5%.

Required:

Question 1: If the firm changes its capital structure to include 40% debt, what is the firm's ROE before and after the change?

Note: Please show how to work it out.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91162084

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