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Last year Rovo Company had $200,000 of total assets, $25,242 of net income, and a debt-to-total-assets ratio of 36%. Now suppose the new CFO convinces

Last year Rovo Company had $200,000 of total assets, $25,242 of net income, and a debt-to-total-assets ratio of 36%. Now suppose the new CFO convinces the president to increase the debt-to-total assets ratio to 52%. Sales and total assets will not be affected, but interest expenses would 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 (that is, new ROE - old ROE)? Round your answer to two decimal places of percentage. (Hint: ROE = net income/common equity)

6.54%

6.60%

6.57%

6.47%

6.51%

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