Seattle Health Plans currently uses zero-debt financing. Its operating profit is $1 million, and it pays taxes at a 40 percent rate. It has $5 million in assets and because it is all-equity financed, $5 million in equity. Suppose the firm is considering replacing half of its equity financing with debt financing that bears an interest rate of 8 percent.

a. What impact would the new capital structure have on the firms profit, total dollar return to investors, and return on equity?