You Have Been Hired by a New Firm That Is

Multiple Choice

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?

A) 5.44%
B) 5.73%
C) 6.03%
D) 6.33%
E) 6.65%