You Work for the CEO of a New Company That

Multiple Choice

You work for the CEO of a new company that plans to manufacture and sell a new product,a watch that has an embedded TV set and a magnifying glass crystal.The issue now is how to finance the company,with only equity or with a mix of debt and equity.Expected operating income is $400,000.Other data for the firm are shown below.How much higher or lower will the firm's expected ROE be if it uses some debt rather than all equity,i.e.,what is ROE_L − ROE_U? ​
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A) 5.85%
B) 6.14%
C) 6.45%
D) 6.77%
E) 7.11%