Question

Alternatively, Happy Turtle Transportation Company’s CFO is also considering financing the project with 50% debt and 50% equity capital. The interest rate on the company’s debt will be 13%. Because the company will finance only 50% of the project with equity, it will have only 15,000 shares outstanding. Happy Turtle Transportation Company’s ROE and the company’s EPS will be ???? if the management decides to finance the project with 50% debt and 50% equity.

a)14.20% and $ 1.42, respectively
b) 14.91% and $ 1.35, respectively
c) 17.04% and $ 1.63, respectively
d) 16.33% and $ 1.56, respectively

Answer 1

When financing with 50% debt and 50% equity, Happy Turtle Transportation Company's ROE will be 14.20% and EPS will be $1.42.

Step-by-step explanation:

When financing the project with 50% debt and 50% equity, the Return on Equity (ROE) of Happy Turtle Transportation Company will be 14.20% and the Earnings per Share (EPS) will be $1.42. To calculate the Return on Equity (ROE) and Earnings Per Share (EPS) for Happy Turtle Transportation Company when financing the project with 50% debt and 50% equity, we need to consider the given information.