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Firms HL and LL are identical except for their financial leverage raties and the interest...

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Finance

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Firms HL and LL are identical except for their financial leverage raties and the interest rotes they pay on debt. Each has $28 million in invested capital, has 54.2 million of EBrT, and is in the 25% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capial ratio of 60% and pays 12% 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. a. Calculate the return on invested capital (ROIC) for each firm. Rlound vour answers to two decimal places. ROIC for firm L : ROIC for firm HL b. Calculate the rate of retum on equity (ROE) for each form. Round your answers to two decimal places. AOE for firm LL: ROE for firm Bt: c. Observing that HL has a bigher ROE, L's treasurer is thinking of rasing the debt-to-capital ratio from 25% to 60% even though that would increase L's interest rate on all debt to 15%. Calculate the new hoe for LL Round your answer to two decimal places

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