The percentage of debt in the capital structure

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Reference no: EM131900698

You have been hired by a new firm that is just being started. The CFO wants to finance with 60% debt, but the president thinks it would be better to hold the percentage of debt in the capital structure (wd) to only 10%. Other things held constant, and based on the data below, if the firm uses more debt, by how much would the ROE change, i.e., what is ROENew - ROEOld? Do not round your intermediate calculations. Operating Data Other Data Capital $4,000 Higher wd 60% ROIC = EBIT(1 – T)/Capital 17.00% Higher interest rate 13% Tax rate 35% Lower wd 10% Lower interest rate 9%.

Reference no: EM131900698

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