How much dollar return can Susan expect to earn from her investment each year under each of the…
1. The Digital Sound Corporation has 1 darling portion-outs of base fund unappropriated at $10 per portion-out. It is an all-equity attached. Susan Wang is CEO at Wang Finance Ltd. She wants to realize a peril of 1 percent of the attached but has not unwavering incomplete the three practicable financing excellents. She can borrow 20 percent, 40 percent, or 60 percent of the capital she needs at a continuous curiosity-behalf objurgate of 10 percent a year. The reappear on equity of the Digital Sound Corporation is 15 percent. Assume that she is in an MM no-tax earth.
a. How considerable dollar reappear can Susan await to merit from her investment each year below each of the three financing alternatives, respectively?
b. What are Susan’s reappears on equity on each financing excellent, respectively?
c. From compatability (a) and (b), what conclusion can she pull environing the reappear on equity of a leveraged attached?