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Business, 28.05.2021 19:30 maxy7347go

Marvel Avengers has expected sales of $250 million a year. Variable costs are expected to be 70 percent of sales and fixed operating costs are $20000000 a year. Total capital is presently $400000000 and must be expanded to $600000000 to generate the anticipated sales level. The company presently has no debt outstanding, and 2130000 shares of stock. Additional common stock could be sold for $150 a share. The interest rate on new debt would be 6 percent and the tax rate is 25 percent. Compute the return on equity and earnings per share assuming the expansion is financed: Sales of $250 million, Var. cost of 70% of sales, Fixed cost of $20000000 per year, new capital needed $200000000 ($600000000 - $400000000), number of shares 2130000 shares, stock price of $150, interest expense of 6%, tax of 25%, assume no preferred dividends. a. exclusively with debt, b. exclusively with equity and c. with one-half debt and one-half equity. Calculate return on equity (ROE) and earnings per share (EPS) if expansion is financed by equity.

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