How tocalculate ROA? and how will ROE change if debt is increased to 60%?

Question

Details: CCA Co., is operating in perfect market conditions with no corporate or personal taxes. The company's debt has an expected return of 11% and the return on equity is 16%. The debt to assets ratio is 40%.

Answer 1

ROA = EBIT / Total Assets

EBIT is 40%@11% + 60%@16% = 14%
Assets is 60%, so 60% of 14% = 8.4%

If debt is increased to 60% we have
60%@11% + 40%@16% = 13% and 40% of this is 5.2%