the neal company wishes to calculate next year s return on equity under different le 4376015

The Neal Company wishes to calculate next year’s return on equity under different leverage ratios. Neal’s total assets are $14 million, and its federal-plus-state tax rate is 40 percent. The company is able to estimate next year’s earnings before interest and taxes for three possible states of the world: $4.2 million with a 0.2 probability, $2.8 million with a 0.5 probability, and $700,000 with a 0.3 probability. Calculate Neal’s expected return on equity. LEVERAGE (DEBT/TOTAL ASSETS) INTEREST RATE 0% ………………………………….. – 10 …………………………………… 9% 50 …………………………………… 11 60 …………………………………… 14 View Solution:
The Neal Company wishes to calculate next year s return on

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