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 (wc) = 1 - wd. Other things held constant, and based on the data below, if the firm increases the percentage of debt in its capital structure (wd) 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 wd5%ROIC = EBIT (1 - T)/Capital20.00% Old interest rate10%Tax rate35% New wd60% New interest rate12%?
A. 14.95%
B. 19.17%
C. 17.59%
D. 21.64%
E. 14.42%
Answer: C
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