ROE: ROE = NI/$225,000 The ROE for each state of the economy under the current capital structure and no taxes is: Recession Normal Expansion ROE 3.38% 8.44% 10.98% %ROE –60 ––– +30 The second row shows the percentage change in ROE from the normal economy. b. If the company undertakes the proposed recapitalization, the new equity value will be: Equity = $225,000 – 90,000 Equity = $135,000 So, the ROE for each state of the economy is: ROE = NI/$135,000 Recession…
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