Question: In the following example, the proposed debt issue would raise $4,000,000; the interest rate would be 10%. In addition, the EBIT would be $2,000,000.

In the following example, the proposed debt issue would raise $4,000,000; the

In the following example, the proposed debt issue would raise $4,000,000; the interest rate would be 10%. In addition, the EBIT would be $2,000,000. What would be the increase in the Return on Equity (ROE) from to current to the proposed structure? Assets Debt Equity Debt-Equity Ratio Share Price Shares Outstanding Interest Rate Proposed $10,000,000 0 $4,000,000 Current $ 10,000,000 $ $ 10,000,000 $ 6,000,000 0 25 $ 400,000 N/A 0.67 25 240,000 10%

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