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Last year, Candle Corp. had $ 2 5 0 in assets, $ 3 0 0 in sales, $ 2 0 in net income, and a

Last year, Candle Corp. had $250 in assets, $300 in sales, $20 in net income, and a 40% liability-to-asset ratio. Now, suppose the new CFO convinces the president to increase the liability-to-asset ratio to $50%. Sales and total assets will not be affected, but interest expenses will increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital structure improve the ROE?

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