Exercise $10-1($Static$)$ Debt versus equity financing LO A$1$

Green Foods currently has $$200,000$ of equity and is planning an $$80,000$ expansion to meet increasing demand for its product. The company currently earns $$50,000$ in net income, and the expansion will yield $$25,000$ in additional income before any interest expense.

The company has three options:

$(1)$ do not expand,

$(2)$ expand and issue $$80,000$ in debt that requires payments of $8\%$ annual interest, or

$(3)$ expand and raise $$80,000$ from equity financing.

For each option, compute

$($a$)$ net income and

$($b$)$ return on equity $($Net Income $$ Equity$).$ Ignore any income tax effects.

Note: Round "Return on equity" to $1$ decimal place.