Ryan Fitzgerald the vice president of finance for Southwest Development Company is evaluating a proposed expansion plan currently. Southwest Development has $660 million of total assets and the company's equity ratio Is 38% Southwest Development has never issued preferred shares. The company's earnings before interest and taxes (EBIT) are $83 6 million. The interest rate on their debt is 7 2% and the company's tax rate is 30%. The company is planning to expand by investing $110 million. In assets. As result both sales and EBIT will increase by 20%. The expansion will be financed with 40% debt and 60% common equity If Southwest Development proceeds with the expansion what will happen to the company's return on equally (ROE)?

Ryan Fitzgerald the vice president of finance for Southwest Development Company is evaluating a proposed expansion plan currently. Southwest Development has $660 million of total assets and the company’s equity ratio Is 38% Southwest Development has never issued preferred shares. The company’s earnings before interest and taxes (EBIT) are $83 6 million. The interest rate on their debt is 7 2% and the company’s tax rate is 30%. The company is planning to expand by investing $110 million. In assets. As result both sales and EBIT will increase by 20%. The expansion will be financed with 40% debt and 60% common equity If Southwest Development proceeds with the expansion what will happen to the company’s return on equally (ROE)?

Ryan Fitzgerald the vice president of finance for Southwest Development Company is evaluating a proposed expansion plan currently. Southwest Development has $660 million of total assets and the company’s equity ratio Is 38% Southwest Development has never issued preferred shares. The company’s earnings before interest and taxes (EBIT) are $83 6 million. The interest rate on their debt is 7 2% and the company’s tax rate is 30%. The company is planning to expand by investing $110 million. In assets. As result both sales and EBIT will increase by 20%. The expansion will be financed with 40% debt and 60% common equity If Southwest Development proceeds with the expansion what will happen to the company’s return on equally (ROE)?
A . ROE decreases from 19.78% to 18.48%.
B. ROB increases from 14.07% to 14.12%.
C. ROE decreases from 28.25% to 26.40%.
D. ROE increases from 19.78% to 20.17%.

Answer: A