What is difference between ccc expected roe
Course:- Finance Basics
Reference No.:- EM13298378

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Central city construction (CCC) needs $1 million of assets to get started, and it expects to have basic earning power of 20%. CCC will own no securities, so all of its income will be operating income. If it chooses, CCC can finance up to 50% of its assets with debt, which will have an 8% interest rate. Assuming 40% tax rate on all taxable income, what is difference between CCC's expected ROE if it finances with 50% debt versus its expected ROE if it finances entirely with common stock?

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