The Neal Company wants to estimate next years return on equity (ROE) under different leverage ratios. Neals total assets are $14 million, it currently uses only common equity, and its federal-plus-state tax rate is 40%. The CFO has estimated next years EBIT for three possible states of the world: $4.2 million with a 0.2 probability, $2.8 million with a 0.5 probability, and $700,000 with a 0.3 probability. Calculate Neals expected ROE, standard deviation, and coefficient of variation for each of the following debt ratios; then evaluate the results:
.transtutors.com/Transtutors001/Images/Transtutors001_73433c52-8c26-4ba8-a8fb-b4071f90083d.PNG”>
What is the formula for solving standard deviation and variance? I completed the expected ROE, but I’m not sure how to solve for the other two.
Offcanvas menu