Green Foods currently has $410,000 of equity and is planning an $164,000 expansion to meet increasing demand for its product. The company currently earns $61,500 in net income, and the expansion will yield $30,750 in additional income before any interest expense. The company has three options: (1) do not expand, (2) expand and issue $164,000 in debt that requires payments of 11% annual interest, or (3) expand and raise $164,000 from equity financing. For each option, compute (a) net income and (b) return on equity (Net Income + Equity). Ignore any income tax effects. (Round "Return on equity" to 1 decimal place.) Income before interest expense Interest expense Net income Equity Return on equity 1 Don't Expand 2 Debt Financing 3 Equity Financing % % %
Green Foods currently has $410,000 of equity and is planning an $164,000 expansion to meet increasing demand for its product. The company currently earns $61,500 in net income, and the expansion will yield $30,750 in additional income before any interest expense. The company has three options: (1) do not expand, (2) expand and issue $164,000 in debt that requires payments of 11% annual interest, or (3) expand and raise $164,000 from equity financing. For each option, compute (a) net income and (b) return on equity (Net Income + Equity). Ignore any income tax effects. (Round "Return on equity" to 1 decimal place.) Income before interest expense Interest expense Net income Equity Return on equity 1 Don't Expand 2 Debt Financing 3 Equity Financing % % %
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 5P
Related questions
Question
![Green Foods currently has $410,000 of equity and is planning an $164,000 expansion to meet increasing demand for its product. The
company currently earns $61,500 in net income, and the expansion will yield $30,750 in additional income before any interest
expense.
The company has three options: (1) do not expand, (2) expand and issue $164,000 in debt that requires payments of 11% annual
interest, or (3) expand and raise $164,000 from equity financing. For each option, compute (a) net income and (b) return on equity (Net
Income = Equity). Ignore any income tax effects. (Round "Return on equity" to 1 decimal place.)
1 Don't Expand 2 Debt Financing 3 Equity Financing
Income before interest expense
Interest expense
Net income
Equity
Return on equity
%
%
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6ee690c1-7550-48bb-b0b1-146590e5cb48%2Fee824e90-571b-4637-8904-e23866949d8a%2Fq1zodb_processed.png&w=3840&q=75)
Transcribed Image Text:Green Foods currently has $410,000 of equity and is planning an $164,000 expansion to meet increasing demand for its product. The
company currently earns $61,500 in net income, and the expansion will yield $30,750 in additional income before any interest
expense.
The company has three options: (1) do not expand, (2) expand and issue $164,000 in debt that requires payments of 11% annual
interest, or (3) expand and raise $164,000 from equity financing. For each option, compute (a) net income and (b) return on equity (Net
Income = Equity). Ignore any income tax effects. (Round "Return on equity" to 1 decimal place.)
1 Don't Expand 2 Debt Financing 3 Equity Financing
Income before interest expense
Interest expense
Net income
Equity
Return on equity
%
%
%
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