Blanc Corporation is planning its debt maturity mix. Management has chosen a debt-equity mix consisting of $20,000 of liabilities and $15,000 of owners' equity. The yield curve is currently upward sloping: the interest rate on short-term debt is 6% and the interest rate on long-term debt is 10%. Blanc has $18,000 of current assets, anticipates EBIT of $4,000 and has a 40% tax rate.

What will Blanc's return on equity ratio be if it makes $15,000 of the liabilities short-term and $5,000 long-term?

Answer rating: 100% (QA)

First lets calculate the total interest expense Shortterm debt 15000 x 6 900 Longterm debt 5000 ... View the full answer