Question: Seattle Health Plans currently uses zero-debt financing. Its operating profit is $4 million, and it pays taxes at a 25 percent rate. It has $15

Seattle Health Plans currently uses zero-debt financing. Its operating profit is

Seattle Health Plans currently uses zero-debt financing. Its operating profit is $4 million, and it pays taxes at a 25 percent rate. It has $15 million in assets and, because it is all-equity financed, $15 million in equity. Suppose the firm is considering replacing 62 percent of its equity financing with debt financing that bears an interest rate of 11 percent. What impact would the new capital structure have on the firm's ROE (return on equity)

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