The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's

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The Neal Company Wants To Estimate Next Year S Return On Equity Roe Under Different Financial Leverage Ratios Neal S 1 (36.26 KiB) Viewed 20 times

The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's total capital is $13 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital structure, and its federal-plus-state tax rate is 25%. Neal is a small firm with average sales of $25 million or less during the past 3 years, so it is exempt from the interest deduction limitation. The CFO has estimated next year's EBIT for three possible states of the world: $5.5 million with a 0.2 probability, $2.3 million with a 0.5 probability, and $400,000 with a 0.3 probability. Calculate Neal's expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios. Do not round intermediate calculations. Round your answers to two decimal places. Debt/Capital ratio is O. RÔE: % 0: % CV: Debt/Capital ratio is 10%, interest rate is 9%. RÔE: % 0: % CV: Debt/Capital ratio is 50%, interest rate is 11%. RÔE: % 0: % CV: Debt/Capital ratio is 60%, interest rate is 14%. RÔE: % 0: % CV: