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What impact would the new capital structure have on the firm’s net income, total dollar return to investor, and ROE?

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Posted on 
May 24th, 2023
Home Homework Help What impact would the new capital structure have on the firm’s net income, total dollar return to investor, and ROE?

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The impact of the new capital structure on a firm’s net income, total dollar return to investor and ROE would depend largely on how much debt is issued and what terms it carries. In general, taking on more debt can reduce net income because interest must be paid. However, it will also result in higher investor returns as the leverage increases.

In the meantime, however, an increase in debt could have a negative impact on ROE (return of equity), as more money would need to allocated to servicing these obligations instead of reinvesting into the business or giving out dividends that both influence shareholder value. The final result of carefully evaluating each option is that firms will be able create an optimal capitalization structure, which allows them to meet their long-term objectives and goals.

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