Firms HD and LD Are Identical Except for Their Use

Multiple Choice

Firms HD and LD are identical except for their use of debt and the interest rates they pay HD has more debt and thus must pay a higher interest rate. Based on the data given below, how much higher or lower will HD's ROE be versus that of LD, i.e., what is ROEHD ? ROELD?
80) $\begin{array}{c}\begin{array}{lr}\underline{\text { Applicable to Both Firms }}\\ \text { Capital } \quad \$ 3,000,000 \\\text { EBIT } \quad \$ 500,000 \\\text { Tax rate } \quad 35 \%\end{array}\begin{array}{lll}\underline{\text { Firm HD's Data }}\\ \mathrm{w}_{\mathrm{d}} \quad\quad\quad\quad 70 \% \\\text { Int. rate } \quad 12 \% \\\\\end{array}\begin{array}{lll}\underline{\text { Firm LD's Data }} \\\mathrm{w}_{\mathrm{d}} \quad\quad\quad\quad 20 \% \\\text { Int. rate } \quad 10 \%\\\\\end{array}\end{array}$

A) 5.41%
B) 5.69%
C) 5.99%
D) 6.29%
E) 6.61%