t Parameters Table 1 Assets Leverage (D/E) 0.20 Simulate the response of the equity growth rate to changes in the leverage position and return on assetsDebt Return to assets (percentage) 0.12 Equity 716,667 Interest rate 0.07 Leverage (D/E) Return to assets (%) Tax rate 0.20 0.04 0.08 0.12 0.16 0.2 Income statement Consumption rate 0.50 0.00 Return to assets 0.50 Interest on debt 1.00 Taxable income 2.00 Taxes 3.00 After-tax income 4.00 Consumption 5.00 Addition to retained earnings Equity growth rate Graph 1 Plot the relationship between leverage (horizontal axis) and the equity growth rate (vertical axis) for each return to assets percentage (line graph)Equity growth rate (alt. formula)