Jimbob CoIs Considering Ways to Finance a Planned Business Expansion After

Multiple Choice

Jimbob Co.is considering ways to finance a planned business expansion after which the company will have $150,000 in earnings before interest and income taxes.The income tax rate is 30%.One alternative being considered is to issue new long-term debt of $500,000 with an annual interest rate of 8%.The company's common shareholders' equity is expected to average $500,000.What will be the return on common shareholders' equity if this alternative is taken?

A) 0%.
B) 10.5%.
C) 15.4%.
D) 30%.