Now, develop an example that can be presented to SDSS's management. As an illustration, onsider two hypothetical firms, Firm U, with zero debt financing, and Firm L, with $10,000 of 12% debt. Both firms have $20,000 in total assets and a 40% marginal tax rate, and they face the following EBIT probability distribution for next year: c. ProbabilityEBIT 0.25 0.50 0.25 $2,000 3,000 4,000 (1) Complete the following partial income statements and the set of ratios for Firm L Firm U Firm L Assets Equity $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $10,000 $10,000 $10,000 0.25 0.500.25 0.25 0.50 0.25 $ 6,000 $9,000 $12,000 $ 6,000 $ 9,000 $12,000 4,000) (6,000) (8,000) (4,000) (6,000) (8,000) $3,000 $4,000 1200 $ 2,000 $ 3,000 $4,000 $800 $2,800 Probability Sales Operating costs Earnings before interest and taxes $ 2,000 $ 3,000 $ 4,000 $ 2,000 Interest (12%) Earnings before taxes Taxes (40%) Net income 0) O C 0 1200) L 8001 2001 (1,600) ( 320) 6.0% 9.0% 12.0% 4.8% 1.7x $ 1200 $ 1,800 $2.400 $480 $1680 % 16.8% ROE Net income Common equity x 3.3x Interest 10.8% 2.5x 4.2% 0.6x 9.0% Expected ROE Expected TIE 2.1% 0x What does this example illustrate concerning the impact of financial leverage on expected rate of return and risk? (2)