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Question 1 1 pts Seattle Health Plans currently uses zero-debt financing. Its operating profit is $1 million, and it pays taxes at a 23
Question 1 1 pts Seattle Health Plans currently uses zero-debt financing. Its operating profit is $1 million, and it pays taxes at a 23 percent rate. It has $7 million in assets and, because it is all-equity financed, $7 million in equity. Suppose the firm is considering replacing 71 percent of its equity financing with debt financing that bears an interest rate of 11 percent. What impact would the new capital structure have on the firm's ROE (return on equity)? (Enter your answer as a percentage, rounded to 2 decimal places. If ROE would increase, enter your answer as a positive number. If ROE would decrease, enter your answer as a negative number. Do not include % sign. For example an increase in ROE of 12.3456% would be entered as 12.35.)
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