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1. The company plans to manufacture and sell a new product, a cell phone that...

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1. The company plans to manufacture and sell a new product, a cell phone that can be worn like a wrist watch. The issue now is how to finance the company, with equity only or with a mix of debt and equity. All the necessary information is shown below. How much higher or lower will the firm's expected ROE be if it uses 60% debt rather than only equity, i.e., what is ROE under 60% debt bt - ROE under 0% debt? Tax rate is 25% (10 points) 0% Debt 60% Debt Expected unit sales (0) 33,500 33,500 Price per phone (P) $350.00 $350.00 Fixed costs (F) $1,000,000 $1,000,000 Variable cost/unit (V) $250.00 $250.00 Required investment $2,500,000 $2,500,000 Debt, s SO $1,500,000 Equity, $ $2,500,000 $1,000,000 Interest rate NA 10.00%

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