# solution

Jamie wants to open a beauty salon nearby Hannam University. When her equity is fixed at W100 MM, calculate the ROEs for the leverage ratios of 0%, 100%, 400% and 900%, respectively (4 points each). Decide to expand the number of shops (4 points). (20 points in total) While the purchase price of one shop is WICOMM, the annual sales and labor charges per shop are estimated as W50MM and W20MM, each. You need a worker even in your shop. Suppose that the ratio of cost of goods sold to sales, interest rate and tax rate are 50%, 4.0% and 20%, respectively. (in Thousand KRW) Leverage Ratio 0% 100% 400% 900% # of Shops Equity 100,000 100.000 100,000 1 2 5 10 100,000 Liabilities Sales . C of Goods Sold 20,000 40,000 100,000 200,000 Sales Profit – GA&S Expense Operating Income – Interest Expense ??? – Corporate Tax Net Income ROE Explain briefly

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