Answer Happy

eBook Firms HL and LL are identical except for their financialleverage ratios and the interest rates they pay on debt. Each has$14 million in invested capital, has $2.1 million of EBIT, and isin the 25% federal-plus-state tax bracket. Both firms are smallwith average sales of $25 million or less during the past 3 years,so both are exempt from the interest deduction limitation. Firm HL,however, has a debt-to-capital ratio of 55% and pays 12% intereston its debt, whereas LL has a 30% debt-to-capital ratio and paysonly 10% interest on its debt. Neither firm uses preferred stock inits capital structure.Calculate the return on invested capital (ROIC) for each firm.Round your answers to two decimal places.ROIC for firm LL: %ROIC for firm HL: %Calculate the return on equity (ROE) for each firm. Round youranswers to two decimal places.
ROE for firm LL: %
ROE for firm HL: %Observing that HL has a higher ROE, LL's treasurer is thinking ofraising the debt-to-capital ratio from 30% to 60% even though thatwould increase LL's interest rate on all debt to 15%. Calculate thenew ROE for LL.
Round your answer to two decimal places. %