13-7 FINANCIAL LEVERAGE EFFECTS The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's total capital is $14 million, it currently uses only common equity, it has no future plans to use preferred stock in its 480 Part 5 Capital Structure and Dividend Policy capital structure, and its federal-plus-state tax rate is 40%. The CFO has estimated next ear's EBIT for three possible states of the world: $4.2 million with a 0.2 probability, 2.8 million with a 0.5 probability, and $700,000 with a 0,3 probability. Calculate Neal's expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios, then evaluate the results: Debt/Capital Interest Ratio Rate 10 11