Laserscope Inc. is trying to determine the best combination of short-term and long-term debt to employ in financing its assets. Laserscope will have $16 million in current assets and $20 million in fixed assets next year and expects operating income (EBIT) to be $4.1 million. The company's tax rate is 40% and its debt ratio is 50%. The firm's debt will be financed by one of the following policies:
What is the return on shareholder's equity under each policy?

Question

Laserscope Inc. is trying to determine the best combination of short-term and long-term debt to employ in financing its assets. Laserscope will have $16 million in current assets and $20 million in fixed assets next year and expects operating income (EBIT) to be $4.1 million. The company's tax rate is 40% and its debt ratio is 50%. The firm's debt will be financed by one of the following policies: 
What is the return on shareholder's equity under each policy?

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