You have been hired by a new firm that is just being started. The CFO wants to finance with 60% debt, but the president thinks it would be better to hold the percentage of debt in the capital structure (w_d) to only 10%. The company is small, so it is not subject to the interest deduction limitation. Other things held constant, and based on the data below, if the firm uses more debt, by how much would the ROE change, i.e., what is ROE_Higher - ROE_Lower? Do not round your intermediate calculations.

Operating Data			Other Data
Capital	$4,000		Higher wd	60%
ROIC = EBIT(1 T)/Capital	12.00%		Higher interest rate	13%
Tax rate	25%		Lower wd	10%
			Lower interest rate	9%

a. 1.87%

b. 2.22%

c. 3.75%

d. 2.80%

e. 2.54%