You have been hired by a new firm that is just being started.The CFO wants to finance with 60% debt,but the president thinks it would be better to hold the percentage of debt in the capital structure (w_d) to only 10%.Other things held constant,and based on the data below,if the firm uses more debt,by how much would the ROE change,i.e. ,what is ROE_Higher - ROE_Lower? Do not round your intermediate calculations. $\begin{array}{lrlr}\text { Operating Data }&&\text { Other Data }\\\text { Capital } & \$ 4,000 & \text { Higher wd } & 60 \% \\\text { ROIC = EBIT }(1-\mathrm{T}) / \text { Capital } & 17.00 \% & \text { Higher interest rate } & 13 \% \\\text { Tax rate } & 35 \% & \text { Lower wd } & 10 \% \\& & \text { Lower interest rate } & 9 \%\end{array}$
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Question

You have been hired by a new firm that is just being started.The CFO wants to finance with 60% debt,but the president thinks it would be better to hold the percentage of debt in the capital structure (w_d) to only 10%.Other things held constant,and based on the data below,if the firm uses more debt,by how much would the ROE change,i.e. ,what is ROE_Higher - ROE_Lower? Do not round your intermediate calculations.

\begin{array}{lrlr}\text { Operating Data }&&\text { Other Data }\\\text { Capital } & \$ 4,000 & \text { Higher wd } & 60 \% \\\text { ROIC = EBIT }(1-\mathrm{T}) / \text { Capital } & 17.00 \% & \text { Higher interest rate } & 13 \% \\\text { Tax rate } & 35 \% & \text { Lower wd } & 10 \% \\& & \text { Lower interest rate } & 9 \%\end{array}

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The Answer of You have been hired by a new firm that is just being started.The CFO wants to finance with 60% debt,but the president thinks it would be better to hold the percentage of debt in the capital structure (w_d)to only 10%.Other things held constant,and based on the data below,if the firm uses more debt,by how much would the ROE change,i.e. ,what is ROE_Higher - ROE_Lower? Do not round your intermediate calculations. $\begin{array}{lrlr}\text { Operating Data }&&\text { Other Data }\ \text { Capital } & \$ 4,000 & \text { Higher wd } & 60 \% \ \text { ROIC = EBIT }(1-\mathrm{T}) / \text { Capital } & 17.00 \% & \text { Higher interest rate } & 13 \% \ \text { Tax rate } & 35 \% & \text { Lower wd } & 10 \% \ & & \text { Lower interest rate } & 9 \% \end{array}$ ? A) 10.31% B) 11.59% C) 10.43% D) 9.15% E) 10.54%

You Have Been Hired by a New Firm That Is