Suppose "South End, Inc. has a ROA of 7% and pays a 6% interest on its debt. South End has a capital structure that is 70% equity and 30% debt. Relative to a firm that has similar earnings and is 100% equity financed, South Ends Net Profit will be _____ and its ROE will be _______. Choose the best possible answer considering a general scenario *

1. Higher, higher
2. Lower, lower
3. Difficult to correctly predict with given information
4. Lower, higher
5. Higher, lower