Fast Track Inc.is in the process of acquiring another business.In light of the acquisition,shareholders are currently re-evaluating the appropriateness of the firm's capital structure (the types of and relative levels of debt and equity).The two proposals being contemplated are detailed below:
Requirements:
a.Calculate the estimated return on equity (ROE)under the two proposals.(ROE ~ net income after taxes / market value of equity; net income after taxes = (EBIT - interest on long-term debt)× (I - tax rate).)
b.Which proposal will generate the higher estimated ROE?
Definitions:
Asterisk
A typographical symbol (*) used for various purposes, including indicating footnotes, corrections, omissions, and multiplication in mathematics.
Quota
A fixed share or limit of items or resources that can be allocated, produced, or consumed.
User Accounts
Digital profiles that represent individuals in a computer system, enabling them to access and interact with software and services.
Compressing
The process of reducing the size of a file or data to save space or transmission time.
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