45. You work for your friend who just started a company that plans to manufacture and sell a new product, a watch that has an embedded TV set and a magnifying glass crystal. The issue now is how to finance the company, with only equity or with a mix of debt and equity. Expected operating income is $510,000. Other data for the firm are shown below. How much higher or lower will the firm's expected ROE be if it uses some debt rather than all equity? Oper. income (EBIT) Required investment % Debt $ of Debt $ of Common equity Interest rate Tax rate 0% Debt, U $510,000 $2,500,000 0.0% $0.00 $2,500,000 NA 60% Debt, L $510,000 $2,500,000 60.0% $1,500,000 $1,000,000 10.00% 35% 35% a. 10.65% b. 10.14% c. 8.11% d. 12.68% e. 7.10%