Under the current capital structure, Olimp Inc. has no debt and a total market value

of $15 Million. The current stock price outstanding is $25 per share.

The firm is proposing a capital restructuring. Under the proposed capital structure, Olimp Inc.

is considering a $6 Million debt issue. The proceeds will be used to repurchase part of the

outstanding stock. The price per share will not change and the interest rate of debt is

10%.There are no taxes. EBIT is expected to be $2.5 million, but could be

as high as $3.5 million if an economic expansion occurs, or as low as

$2 million if a recession occurs. All values are market values.

15 What is ROE for the proposed capital structure if theexpectedEBIT

occurs?

A)15.1%

B)17.1%

C)19.1%

D)21.1%

E)23.1%