ROE and capital structure. Ohio Quarry, Inc. which capital structure yields the highest variability (ie risk) in ROE?
Ohio Quarry, Inc. has $12,000,000 in assets. Its expected operating income (EBIT) is $2,000,000 and its income tax rate is 40%. If Ohio Quarry finances 20% of its total assets with debt capital, the pretax cost of funds is 10%. If the company finances 40% of its total assets with debt capital, the pretax cost of funds is 15%.