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Click here to read the eBook: Business and Financial Risk FINANCIAL LEVERAGE EFFECTS Pirms HL and LL are identical except for their financial leverage ratios

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Click here to read the eBook: Business and Financial Risk FINANCIAL LEVERAGE EFFECTS Pirms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $15 million in invested capital, hus 12.25 million of eat, and is in the 40% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capital ratio of 60% and pays 12 interest on its debt, whereas LL has a debt-to-capita ratio and pays only 10% interest on its debt. Neither firm uses preferred stock in its capital structure a. Calculate the return on invested capital (ROIC) for each firm. Round your answers to two decimal places ROIC for firm LLI ROIC for firm HL IS % b. Calculate the rate of return on equity (ROE) for each firm. Round your answers to two decimal places ROE for firm LL is ROE for firm HL is 76 c. Observing that has a higher ROE, U's treasurer is thinking of raising the debt-to-capital ratio from 30% to 60% even though that would increase interest rate on all debt to 15%. Calculate the new ROE for LL. Round your answer to two decimal places. Click here to read the eBook: Business and Financial Risk FINANCIAL LEVERAGE EFFECTS Pirms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $15 million in invested capital, hus 12.25 million of eat, and is in the 40% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capital ratio of 60% and pays 12 interest on its debt, whereas LL has a debt-to-capita ratio and pays only 10% interest on its debt. Neither firm uses preferred stock in its capital structure a. Calculate the return on invested capital (ROIC) for each firm. Round your answers to two decimal places ROIC for firm LLI ROIC for firm HL IS % b. Calculate the rate of return on equity (ROE) for each firm. Round your answers to two decimal places ROE for firm LL is ROE for firm HL is 76 c. Observing that has a higher ROE, U's treasurer is thinking of raising the debt-to-capital ratio from 30% to 60% even though that would increase interest rate on all debt to 15%. Calculate the new ROE for LL. Round your answer to two decimal places

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