ROE and recapitalization At the beginning of the year you invest $35,000 of your own money plus $35,000 that you borrowed at 4% interest to purchase $70,000 worth of GoFast stock, which earns a return of 14%. You pay taxes on the money you make on the stock at the rate of 21%, but you can deduct the interest you pay on your loan from your stock income before calculating your tax bill. a. Calculate your net after-tax return on these positions. b. What would your after-tax return have been if you had never borrowed money and had invested just $35,000 in GoFast stock? a. Your net after-tax return on these positions is ___ %. (Round to two decimal places.) b. If you had never borrowed money and had invested just $35,000 in GoFast stock, your after-tax return on these positions would have been ___ % (Round to two decimal places.)
