Homework Answers
Answer:
Debt to total asset ratio = 17%
Total assets = $395,000
Debt =395000 * 17% = $67,150
Equity = 395000 - 67150 = $327,850
Total asset remaining same if debt ratio = 50%
Debt = 395000 * 50% = $197,500
Equity =39500 -197500 =$197,500
As such due to change in capital structure:
Increase in ROE = 11.26% - 8.91% = 2.34%
Increase in ROE as % = 2.34% / 8.91% = 26.26%
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