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

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The Neal Company wants to estimate next year's return on equity(ROE) under different financial leverage ratios. Neal's totalcapital is $20 million, it currently uses only common equity, ithas no future plans to use preferred stock in its capitalstructure, and its federal-plus-state tax rate is 40%. The CFO hasestimated next year's EBIT for three possible states of the world:$5 million with a 0.2 probability, $1.9 million with a 0.5probability, and $0.8 million with a 0.3 probability. CalculateNeal's expected ROE, standard deviation, and coefficient ofvariation for each of the following debt-to-capital ratios. Do notround intermediate calculations. Round your answers to two decimalplaces at the end of the calculations.
a) Debt/Capital ratio is 0.
RÔE =
? =
CV =
b) Debt/Capital ratio is 10%, interest rate is 9%.
RÔE =
? =
CV =
c) Debt/Capital ratio is 50%, interest rate is 11%.
RÔE =
? =
CV =
d) Debt/Capital ratio is 60%, interest rate is 14%.
RÔE =
? =
CV =

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Question a Debt 0 and Equity 20000000 State Probability EBIT EBT Earning after tax ROEs Prob ROE ROEs ROE Prob ROE ROE2 1 02 5000000 5000000 3000000 1500 300 000711 000142 2 05 1900000 See Answer

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