An industrial firm with assets of $100 million is exploring the benefit of leveraging the balance sheet given expectations of higher corporate income tax rates. Currently, the firms is earning a return on assets of 6.00%, a return on equity of 8.57%, retains a debt ratio of 30% (equity to assets of 70%), a beta of 0.7, and debt rated A. The board of directors has requested management to consider changing the debt ratio to 60% (equity to assets of 40%). The new debt will cost 4.00% given a downgrade to BBB, and the proceeds used to repurchase stock at book value. The firm believes the marginal corporate income tax rate will increase to 50%. The beta is projected to increase given the 30% increase in debt and related fixed charges. First, estimate how the change in capital structure will impact pro forma net income, return on assets, and return on equity. Second, briefly indicate whether and why the firm should leverage the balance sheet by $30 million additional long-term debt?