The Projected EBIT of a Firm Is $300,000

Multiple Choice

The projected EBIT of a firm is $300,000. The firm currently has 100,000 shares of common stock outstanding at a value of $18 per share. The firm has no debt. By how much will the ROE change if the firm borrows $600,000 at 8% interest and uses the funds to repurchase shares of stock at the market price? Ignore taxes.

A) -2.67%
B) 1.67%
C) 2.33%
D) 4.33%
E) 5.67%