Problem #1: Suppose a firm determines that it has the ability to increase its debt level while still able to maintain a 12% Return on Assets. If the firm increases its debt as a percent of its total assets from 25% to 40%, what is the expected Return on Equity?

Problem #2: "If a company's total assets are financed 55% by debt, this indicates a high level of financial risk." Briefly evaluate the validity of this statement.