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 ROEABC ROEXYZ?

Applicable to Both Firms Firm ABC's & Data Firm XYZ's

Data Assets $3,000,000 (same for both )

Debt ratio 70%(ABC COMP.)

Debt ratio 20%(XYZ COM)

EBIT $500,000 (SAME)

Int. rate 12%(ABC COMP)

Int. rate 10% (XYZ)

Tax rate 35%(SAME)