FINANCIAL LEVERAGE EFFECTS The Neal Company wants to estimate next year’s return on equity (ROE)…


FINANCIAL LEVERAGE EFFECTS The Neal Company wants to judge instant year’s recur on equity (ROE) subordinate irrelative leverage ratios. Neal’s completion goods are $14 favorite, it currently uses solely contemptible equity, and its federal-plus-state tax scold is 40%. The CFO has judged instant year’s EBIT for three potential states of the world: $4.2 favorite after a while a 0.2 likelihood, $2.8 favorite after a while a 0.5 likelihood, and $700,000 after a while a 0.3 likelihood. Calculate Neal’s expected ROE, criterion inconsequence, and coefficient of departure for each of the aftercited something-due ratios; then evaluate the results:

Debt Ratio

Interest Rate

0%

10

9%

50

11

60

14