Firms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $29 million in invested capital, has $7.25 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 11% interest on its debt, whereas LL has a 35% debt-to-capital ratio and pays only 10% interest on its debt. Neither firm uses preferred stock in its capital structure. a. Calculate the return on invested capital (ROIC) for each firm. Round your answers to two decimal places. ROIC for firm LL is 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 LL is ROE for firm HL is % % % c. Observing that HL has a higher ROE, LL's treasurer is thinking of raising the debt-to-capital ratio from 35% to 60% even though that would increase LL's interest rate on all debt to 15%. Calculate the new ROE for LL. Round your answer to two decimal places.

Fama's Llamas has a WACC of 9.8 percent. The company's cost of equity is 13 percent, and its pretax cost of debt is 7.5 percent. The tax rate is 21 percent. What is the company's target debt-equity ratio? Note: Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616. Debt-equity ratio

Haricot Corporation and Pinto Corporation both have operating profits of $155 million. Haricot is financed solely by equity, while Pinto has issued $205 million of 5% debt. If the corporate tax rate is 21%:Required:How much tax does each company pay? What is the total payout to investors (debtholders plus shareholders) of each company?

North Pole and South Pole are competitors in the same industry. Both companies face a 23 % income tax rate. Both companies are levered. (North Pole and South Pole had the same equity Betas, 1.18, when they were still unlevered.) Their capital structures look like this: North Pole South Pole Debt $3,030,000 $3,940,000 Equity $3,940,000 $3,030,000 For both companies, the Betas for their debt is zero. Additional information about the market: The market portfolio's expected return is 12.1 %. The T-bill rate is 4.1 %. a. What is the Beta of equity for North Pole and South Pole? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. In addition, calculate the required return on equity that would correctly reflect the level of systematic risk. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. b. North Pole South Pole. North Pole South Pole % %