Firms $HL$ and $LL$ are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $$14$ million in invested capital, has $$2\mathrm{.}1$

million of EBIT, and is in the $25\%$ federal$-$plus$-$state tax bracket. Both firms are small with average sales of $$25$ million or less during the past $3$ years, so both are

exempt from the interest deduction limitation$.$ Firm HL$,$ however, has a debt$-$to$-$capital ratio of $60\%$ and pays $13\%$ interest on its debt, whereas LL has a $30\%$ debt$-$

to$-$capital ratio and pays only $9\%$ 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 LL:

$\%$

ROIC for firm HL:

$\%$

b$.$ Calculate the return on equity $($ROE$)$ for each firm. Round your answers to two decimal places.

ROE for firm LL:

$\%$

ROE for firm HL:

$\%$

c$.$ Observing that HL has a higher ROE, LL$\text{'}$s treasurer is thinking of raising the debt$-$to$-$capital ratio from $30\%$ to $60\%$ even though that would increase LL$\text{'}$s interest

rate on all debt to $15\%.$ Calculate the new ROE for LL$.$ Round your answer to two decimal places.