Question: 12 ROE and Leverage Using the information in the question above on Fresenius SE & Co, suppose Fresenius has a book value of 12.68 billion.

12 ROE and Leverage Using the information in the question above on Fresenius SE & Co, suppose Fresenius has a book value of €12.68 billion.

(a) Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued. Also calculate the percentage changes in ROE for economic expansion and recession, assuming no taxes.

(b) Repeat part

(a) assuming the firm goes through with the proposed recapitalization.

(c) Repeat parts

(a) and

(b) of this problem assuming the firm has a tax rate of 20 per cent.

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