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Your firm's debt ratio is only 5.00%, but the new CFO thinks that more debt should be employed. She wants to sell bonds and use

Your firm's debt ratio is only 5.00%, but the new CFO thinks that more debt should be employed. She wants to sell bonds and use the proceeds to buy back and retire common shares so the percentage of common equity in the capital structure (we)-1-wa declines. Other things held constant, and based on the data below, if the firm increases the percentage of debt in its capital structure (wa) to 60.0%, by how much would the ROE change, i.e., what is ROENew-ROEOld? Do not round your intermediate calculations. Operating Data Other Data Capital $150,000 Old Wd 5% ROIC EBIT (1-T)/Capital 16.00% Old interest rate 996 Tax rate 25% New Wo 60% New interest 11% rate a. 27.52 p.p. O b. 4.61 p.p. c.13.47 pp. O d. 14.85 p.p. e. 11.14 p.p

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