ROE and recapitalization At the beginning of the year you invest $30,000 of your own money...

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ROE and recapitalization At the beginning of the year you invest $30,000 of your own money plus $30,000 that you borrowed at 5% interest to purchase $60,000 worth of GoFast stock, which earns a return of 15%. You pay taxes on the money you make on the stock at the rate of 30%, but you can deduct the interest you pay on your loan from your stock income before calculating your tax bill a. Calculate your net after-tax return on these positions. b. What would your after-tax return have been if you had never borrowed money and had invested just $30,000 in GoFast stock? ROE and recapitalization At the beginning of the year you invest $30,000 of your own money plus $30,000 that you borrowed at 5% interest to purchase $60,000 worth of GoFast stock, which earns a return of 15%. You pay taxes on the money you make on the stock at the rate of 30%, but you can deduct the interest you pay on your loan from your stock income before calculating your tax bill a. Calculate your net after-tax return on these positions. b. What would your after-tax return have been if you had never borrowed money and had invested just $30,000 in GoFast stock?

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