Rosenberg had

assets $225,000

EBIT $48,775 (EARNINGS BEFORE INTEREST AND TAXES)

debt-to-total-assets ratio 32%

Now suppose the new CFO ask the new President to increase the debt ratio to 48%

Sales and total assets will not be affected, but interest expenses would increase.

The interest rate on the firm's debt was 7.5%

tax rate was 35%

Assume the interest rate and tax rate would both remain constant

BY HOW MUCH WOULD THE CHANGE IN THE CAPITAL STRUCTURE IMPROVE THE ROE?