- Learning Goals 1 Understand Terminology Related To Leverage And The Capital Structure Problem On Financial Leverage C 1 (48.38 KiB) Viewed 92 times
Learning Goals: 1. Understand terminology related to leverage and the capital structure. Problem on Financial Leverage Concept: Assume a hypothetical firm that have an EBIT of $100,000 and Total Assets of $500,000. Interest on Debt is 10% on all capital structures. Tax 21%, total common shares 10,000. Consider three alternatives: Debt ratio of 0%, Debt ratio of 40% and a Debt Ratio of 70%. Required: Evaluate the effects of increasing Leverage over the stockholders returns (measure by ROE).