Commonwealth Construction (CC) needs $3 million of assets to get started, and it expects to...
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Commonwealth Construction (CC) needs $3 million of assets to get started, and it expects to have a basic earning power ratio of 35%. CC will own no securities, all of its income will be operating income. If it so chooses, CC can finance up to 25% of its assets with debt, which will have a 7% interest rate. If it chooses to use debt, the firm will finance using only debt and common equity, so no preferred stock will be used. Assuming a 25% tax rate on taxable income, what is the difference between CC's expected ROE if it finances these assets with 25% debt versus its expected ROE if it finances these assets entirely with common stock? Round your answer to two decimal places. percentage points
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