Recall the following formula: ROE$=$ROIC$+(ROIC-i^{\text{'}})(\frac{D}{E})$

Which of the following is illustrated by the formula above?

Multiple Choice

ROE is equal to ROIC when there is no leverage.

Leverage increases ROE when it p ptridides a return above the after$-$tax cost of debt $($i$\text{'}).$

An increase is after$-$tax cost of debt $($i$\text{'})$ reduces ROE and makes debt financing less attractive.