Question: Computerfield Inc . is a company that develops new software for the next generation. The firm has 10 million shares outstanding trading at $ 10

  1. Computerfield Inc. is a company that develops new software for the next generation. The firm has 10 million shares outstanding trading at $ 10 per share, no debt outstanding and a cash balance of $ 25 million. The firm decides that it should prepare for the New Software by borrowing $ 15 million, using its cash balance of $ 25 million, and buying $ 40 million of its own stock. (20 points)

  1. What was debt/equity ratio before and after transaction?

  1. What is the change in Equity multiplier?

  1. If the profit margin was increased by 10% and asset turnover increased by 15%, how much ROE would be improved?

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