Quigley Inc. is considering two financial plans for the coming year. Management expects sales to be $300,000, operating

[answerhappygod]

Quigley Inc. is considering two financial plans for the coming
year. Management expects sales to be $300,000, operating costs to
be $265,000, assets (which is equal to its total invested capital)
to be $200,000, and its tax rate to be 25%. Under Plan A it would
finance the firm using 25% debt and 75% common equity. The interest
rate on the debt would be 8.8%, but under a contract with existing
bondholders the TIE ratio would have to be maintained at or above
5.4. Under Plan B, the maximum debt that met the TIE constraint
would be employed. Assuming that sales, operating costs, assets,
total invested capital, the interest rate, and the tax rate would
all remain constant, by how much would the ROE change in response
to the change in the capital structure? Do not round your
intermediate calculations.
A. 3.89%
B. 3.67%
C. 3.49%
D. 4.22%
E. 4.40%