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5. Problem 13.07 Click here to read the eBook: Business and Financial Risk FINANCIAL LEVERAGE...

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5. Problem 13.07 Click here to read the eBook: Business and Financial Risk FINANCIAL LEVERAGE EFFECTS The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's total capital is $18 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital structure, and its federal-plus-state tax rate is 40%. The CFO has estimated next year's EBIT for three possible states of the world: $4.6 million with a 0.2 probability, $2.2 million with a 0.5 probability, and $0.8 million with a 0.probability Calculate Neal's expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios. Do not round intermediate calculations. Round your answers to two decimal places at the end of the calculations. Debt/Capital ratio is o. ROE - CV- Debt/Capital ratio is 10%, interest rate is 9% ROE CV- Debt/Capital ratio is 50%, interest rate is 11% ROE - CV- Debt/Capital ratio is 60%, interest rate is 14%. ROE- CV

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