Quigley inc. is considering two financial plans for the coming year. management expects sales to be $500 comma 000, operating costs to be $455 comma 000, assets to be $400 comma 000, and its tax rate to be 40%. under plan a, quigley’s balance sheet would be comprised of 25% debt and 75% equity, and the interest rate on the debt would be 3%. under plan b, quigley's balance sheet would be comprised of 60% debt and 40% equity, and the interest rate on the debt would be 8%. sales, operating costs, assets, and the tax rate are not affected by amount of debt quigley uses. ignore non-debt liabilities such as accounts payable. compute roe under each alternative. under plan a, roe = nothing% (enter as percent rounded to 2 digits) under plan b, roe = nothing% (enter as percent rounded to 2 digits)

Return on Equity

Plan A = 8.4%

Plan B = 9.68%

Explanation:

Provided information, we have

Sales = $500,000

Operating Cost = $455,000

Thus Profit before interest and taxes = $500,000 - $455,000 = $45,000

Total value of assets = $400,000

Under Plan A

Debt = 25% and Equity = 75%

Thus, debt = $400,000 25% = $100,000

Interest rate on debt = 3% = $100,000 3% = $3,000

Thus Income after interest but before taxes = $45,000 - $3,000 = $42,000

Less: Taxes @ 40% = ($16,800)

Income after taxes for equity = $25,200

Return on equity =

Under Plan B

Debt = 60% and equity = 40%

Thus, debt = $400,000 60% = $240,000

Interest on debt = $240,000 8% = $19,200

Thus profit after interest = $45,000 - $19,200 = $25,800

Less: Taxes @ 40% = $10,320

Profit for equity = $15,480

Return on equity =

Return on Equity

Plan A = 8.4%

Plan B = 9.68%

answer; /// i believe that the correct answer is (b) money set aside for emergency repairs;

eds? ederal government or feds