Answer Happy

Firms HL and LL are identical except for their financial
leverage ratios and the interest rates they pay on debt. Each has
$14 million in invested capital, has $2.1 million of EBIT, and is
in the 40% federal-plus-state tax bracket. Firm HL, however, has a
debt-to-capital ratio of 55% and pays 13% interest on its debt,
whereas LL has a 25% debt-to-capital ratio and pays only 8%
interest on its debt. Neither firm uses preferred stock in its
capital structure. Calculate the return on invested capital (ROIC)
for each firm. Round your answers to two decimal places. ROIC for
firm LL is % ROIC for firm HL is % Calculate the rate of return on
equity (ROE) for each firm. Round your answers to two decimal
places. ROE for firm LL is % ROE for firm HL is % Observing that HL
has a higher ROE, LL's treasurer is thinking of raising the
debt-to-capital ratio from 25% to 60% even though that would
increase LL's interest rate on all debt to 15%. Calculate the new
ROE for LL. Round your answer to two decimal places. %