14-4 a. For Company LL (Low Leverage), the total assets is $20,000,000, Debt ratio is 30%, the interest rate is 10%, tax rate is 40%, and EBIT is $4,000,000. Whats LLs return on equity (ROE)? ROE = Net Income / Equity 20,000,000x30%=600,000 Fro Company HL (High Leverage), the total assets is $20,000,000, Debt ratio is 50%, the interest rate is 12%, tax rate is 40%, and EBIT is $4,000,000. Whats HLs return on equity (ROE)?

b. IF Company LLs debt ratio is increased to 60% with interest rate of 15%, and other things remain unchanged as above, Whats LLs ROE? Will it be higher than HLs ROE? If not, why?