Attempt 0 Keep the Highest: 0/5 3. Problem 13.05 Click here to read the eBook: Business and Financial Risk FINANCIAL LEVERAGE EFFECTS Firms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $26 million in invested capital, has $6.5 million of EBIT, and is in the 40% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capital ratio of 55% and pays 12% Interest on its debt, whereas L has a 20% debt-to-capital ratio and pays only 10% interest on its debt. Neither firm uses preferred stock in its capital structure. . Calculate the return on invested capital (ROIC) for each firm. Round your answers to two decimal places. ROIC for firm LLIS % ROIC for firm HL is b. Calculate the rate of return on equity (ROE) for each firm. Round your answers to two decimal places ROE for firm LLIS ROE for firm HL IS Observing that He has a higher ROELL's treasurer is thinking of raising the debt-to-capital ratio from 20% to 60% even though that would increase L's interest rate on all Gebt to 15% Calculate the new ROE for LL. Round your answer to two decimal places. Grade it Now Save & Continue Continue without saving