Firms ABC and XYZ are identical except for their use of debt and the interest rates they pay. ABC has more debt and must pay a higher interest rate. Based on the data as shown below, how much higher or lower will ABC's ROE be versus that of XYZ, i.e., what is ROE_ABC - ROE_XYZ?

Applicable to Both FirmsFirm ABC's DataFirm XYZ's Data

Assets$3,000,000Debt ratio70%Debt ratio20%

EBIT$500,000Int. rate12%Int. rate10%