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Compute what will firm return on equity be next year

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Reference no: EM132721662

Problem 1: Jacob Cornwall has a business in which he's invested $320000 of his own money, which is the firm's only capital. (There are no other equity investors and no debt.) In a recent year, the firm had net income of $22000 for a return on equity of 6.88% ($22000/$320000). What will the firm's return on equity be next year if net income from business operations remains the same but it borrows $120000 returning the same amount to Jake from the equity account if (Round your answer to two decimal places.):

a. The after-tax interest rate is 6%. fill in the blank 1
b. The after-tax interest rate is 10%. fill in the blank 2

Reference no: EM132721662

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