Kimble Electronics is a small toy manufacturing company with total assets of $ 1.5 million. The company has the opportunity to do a leveraged recapitalization that would involve borrowing 30% to 50% of the firm’s assets at a rate of 9% per year. The firm’s annual return on its total investment in assets varies from 4% to 15%. Analyze the effects of financial leverage on the rate of return earned on Kimble’s equity if the firm borrows 30% or 50% of its assets ( i. e., complete the following table). You may ignore taxes in your calculations.
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