Question: Refer to E13.3. If Tayson issues $200,000 in debt, it anticipates that the interest expense will be $14,000. However, it expects to use this money

Refer to E13.3. If Tayson issues $200,000 in debt, it anticipates that the interest expense will be $14,000. However, it expects to use this money and increase sales such that the income before interest and taxes will be $180,000. If Tayson issues the debt what is its planned return on equity?

Data from E13.3

Tayson Company currently has $1,000,000 owners’ equity and no long term debt. Its expected income for 2019 is $120,000 and it is subject to a 20 percent tax rate. What is Tayson’s planned return on equity?

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