Firms HD and LD are identical except for their use of debt and the interest rates they pay--HD has more debt and thus must pay a higher interest rate. Both companies are small, so they are not subject to the interest deduction limitation. Based on the data given below, how much higher or lower will HD's ROE be versus that of LD, i.e., what is ROE_HD - ROE_LD? Do not round your intermediate calculations.

Applicable to Both Firms			Firm HD's Data			Firm LD's Data
Capital	$3,000,000		wd	70%		wd	20%
EBIT	$470,000		Int. rate	12%		Int. rate	10%
Tax rate	25%

Select one:

a. 5.62%

b. 4.02%

c. 6.69%

d. 5.35%

e. 5.09%